Investing in Rare Coins is More than a Hobby
Having collectibles as an investment can be a great way to diversify your portfolio and reduce risk. The general rule of thumb? Invest in what you love when it comes to collectibles, such as investing in coins. If your collection doesn’t realize a return, you still get to enjoy what you’ve gathered.
Whether you decide to sell your collection or not, you’ll need to understand the basics of tangible asset investments and learn how to protect your investment and yourself.
The Benefit of Investing in Tangible Assets
Collectibles are quickly becoming a popular investment vehicle for those wary of the public stock markets or tired of fluctuations. Tangible assets allow an investment to appreciate in value over time, which appeals to investors. They are also not necessarily exclusive to the uber-wealthy.
Personal interest in a tangible asset remains the number one reason people invest in their collections. Rare coins are considered a commodity-like investment where sentimental value may exist, but coins are one tangible that can also produce attractive financial returns.
Tangible Assets in Times of Economic Uncertainty
Uncertainty is ever-present in the public and private markets. This uncertainty, coupled with inflation, recession, and other economic ups and downs, calls for creative investment strategies.
Tangible assets, also known as hard assets, present several options for investors who want to put money toward their personal interests. These may include income-producing assets such as timberland, farmland, and commodities of all kinds, including precious metals and coins.
With the economic unease caused by the pandemic and record-breaking inflation, many coin collectors noticed an uptick in sales as people pursued tangible assets likely to appreciate in value.
Coin expert and senior editor of “A Guide Book of United States Coins,” Jeff Garrett, told NPR that his online sales have doubled since the pandemic, and increased the value of his U.S. coins by up to 30%.
A record-breaking sale occurred in 2021, as one of the most sought-after U.S. gold coins, a 1933 Double Eagle, sold at Sotheby’s for $18.9 million — nearly twice the price any coin has ever fetched.
Coins as Bullion vs. Coins as Numismatics
There is a distinction between coins as bullion (its physical metal content) and coins as numismatics.
Bullion has a higher “melt value” (i.e., the value the metal would be worth if melted down). Numismatic coins, because they are often much older and made of various metals and components, have a lower melt value. They’re worth less when melted than they are in coin form.
According to the American Numismatic Association (ANA), investors who acquire coins for monetary growth alone often focus on precious metals. Those with a greater interest in numismatics may also pursue their investment with a collector’s spirit, looking for specific pieces or series.
The general rule is to “buy bullion for business, numismatics for fun.”
Why is Investing in Rare Coins Still Popular?
People collect rare coins for many of the same reasons they collect art – one of the biggest being historical interest. “If you buy world coins, you understand how civilization developed,” coin expert John Feigenbaum told NPR’s Marketwatch.
Once nicknamed “The Hobby of Kings,“ collecting coins has become an everyman’s game thanks to a rise in numismatic scholarship, education, access to information, and a growing sophistication of the general public over the last 500 years.
The internet has allowed that growth to happen at an exponential rate. The knowledge that took the previous generation a lifetime to accumulate is at the fingertips of the general public online.
Access to knowledge, resources, and grading information makes it easier for today’s new collectors to get into the game.
For the average person, owning coins makes possessing a piece of history remarkably easy to access. For those interested in antiquities, coins are generally more accessible than larger, tangible asset investments.
Collecting Coins for Beginners
For beginners, collecting rare coins may seem daunting. Experts and experienced collectors offer this advice:
Specialize Your Investment Selection
Choose a particular emperor, denomination, theme, or time period and use it to guide how you invest. Stay focused on a particular concentration and build within that. Even a small collection can be valuable, but that’s less likely if you’re all over the place.
Scrutinize Each Addition to Your Collection
Don’t pick randomly from your choices. Know what you’re looking for and examine coins carefully to make sure they fit within the direction you’re taking your collection.
Study to Grow Your Expertise
“Buy the book before the coin” is a popular adage in coin collecting. Rather than blindly taking the opinions or advice of sellers, collectors should become experts themselves, studying up on values, denominations, rarity, and other aspects of the area in which they intend to collect. Read online trade magazines, join reputable coin communities, talk to other collectors, consult trusted guidebooks, and learn what questions to ask.
Start With a Small Investment
Buying small allows investors to start collecting without betting the farm. Buying large quantities of coins or high-priced coins should only come with experience. Investing in rare coins or coins minted with historical importance is ideal. Inexperienced collectors should never spend large amounts of money on coins they don’t understand. The U.S. Mint recommends beginning with coins you already have on hand.
Does Your Rare Coin Make the Grade?
All coin investors must know their dealers. Investing in rare coins is as much an investment as putting money toward any asset class: Trust is key.
Before purchasing a coin, it’s crucial to be familiar with grading terms:
- Good (G)
- Very Good (VG)
- Fine (F)
- Very Fine (VF)
- Extra Fine (EF)
- Fleur-De-Coin (FDC), or a perfect mint state
There is also the industry-standard Sheldon grading scale of 1 to 70, used by the Professional Coin Grading Service (PCGS), the Numismatic Guaranty Company (NGC), and others.
The overall appearance of a coin and its appeal to buyers and sellers alike are highly subjective matters. Grading standards may vary. Well-known houses like Heritage Auctions, the PCGS, and other reputable sources can also provide a point of reference.
Keep in mind that very fine distinctions between coins will make a big difference in their worth. Subjectivity is considered one of the risks in rare coin investing, and quality greatly impacts value
As Numismatic News notes, “Quality coupled with rarity continues to be a major factor in what sells and what doesn’t.”
Is Investing in Coins a Risky Business?
Any investment has inherent risk, and coin collecting is no different. Are the risks any more or less significant than investing in anything else? Investing in collectibles can deliver great returns, but there are no guarantees. The rare coin market can fluctuate, along with precious metals pricing, which will all affect the value of your investment. If you want short-term profit, coins may not be the best vehicle. But, if you are willing to wait a while for your return and pay attention to pricing trends, rare coins can pay off.
When you are just starting out, it will take some time to develop the requisite knowledge, expertise, and confidence to make wise choices and protect yourself from fraud.
In the meantime, you’ll need to rely on reputable experts, collectors, and dealers to get honest appraisals and fair pricing. If you can find a trusted mentor in the field, it’s an excellent way to get a strong start.
Protecting Yourself Against Fraud in Coin Collecting
There are resources to protect and advise collectors, and new investors should pay particular attention. The Federal Trade Commission regularly issues warnings to help protect consumers from fraud. False claims about grading, current value, and buy-back options are the most common ways investors lose money when collecting coins. The FTC advises buyers to examine coins in person, research coin dealers in advance, and always get a second opinion.
The Commodity Futures Trading Commission (CFTC) cautions consumers not to buy precious metals or coins based on unsolicited calls, email, or other communication.
The Consumer Awareness page of the American Numismatic Association (ANA) website houses a wealth of resources, advisories, and links to help protect investors and collectors. The Numismatic Crime Information Center issues crime alerts and offers educational seminars for coin collectors and investors.
Expert coin dealer and member of the ANA, Doug Winter, advises new dealers not to be afraid to ask questions, think like a collector, learn as much as possible about numismatics, and forge meaningful connections with well-connected and reliable dealers.
You can find reputable dealers through your local coin club or trusted association. If you are researching on your own, make sure to read the reviews, check the Better Business Bureau, and check whether the dealer belongs to professional associations, such as American Numismatics Association (ANA), the Professional Numismatists Guild (PNG), or Numismatic Guaranty Corporation (NGC).
When you do buy a coin, make sure to maintain detailed records and keep all receipts and paperwork associated with the purchase.
Return on Investment
Investors can generally expect rare coins to have an investment horizon similar to most other investments—one that will last a few months or many years. Most often, awaiting the return on a coin takes patience.
While the NCG notes that a holding period of 5 to 10 years before selling is the typical recommendation to collectors, some investors focused on the monetary gain will be more opportunistic and reactive to the market.
Dane Olevian, M.D., founder of Olevian Numismatic Rarities, writes, “That rare coins are top-performing investments is by no means a secret; for decades, informed investors have enjoyed great returns on well-designed numismatic portfolios.” He adds, “Those who treat rare coins and banknotes with the consideration and respect they deserve will profit in many ways, not the least of which can be a sound financial return on your investment of time and money.”
There are professional numismatic reference sites where investors can trace the price trends of coins going back many years and get an idea of how certain coins will fare on the resale market.
Although any investment carries risk, and although almost all dealers of any investment will tell you that “past performance is not an indicator of future results,” investors can make informed decisions about their coins by looking at how the pros have traced them.
Many Others are Investing in Rare Coins, Should You?
Due to economic influence and a rise in the Numismatic Stock Index, rare coins have become a popular alternative for investors.
As Richard Giedroyc tells Numismatic News, “The price of gold is shining brightly into the future, no pun intended.” He added, “This rare coin rally … has continued even now as the economy borders on entering a recession. Coins as a wealth preservation option for jittery stock market investors is helping to drive the current market, but there are serious collectors with serious money also involved.”
So, who buys rare coins? For the most part, it’s anyone interested in owning a tangible piece of history. In his book, When Money Talks: A History of Coins and Numismatics,” coin scholar Frank Holt expresses that coins reveal an immense amount of information about our world and its civilizations.” Holt says, “Money is not simply an object of daily use, but relates to our cultural, political, artistic, religious, social, and military lives.”
Coin collecting is an investment almost anyone can make. For serious investors, coins are a tangible asset that will provide diversity in a portfolio and hedge against inflation as the value of rare coins is generally stable.
It’s not uncommon for investors and celebrities to collect tangible assets, such as rare coins or fine art, as a way of diversifying their investment portfolio. And coins don’t take up as much space as a painting, sculpture, or other tangible investments.
Caesar Augustus (founder of the first Roman empire), J.P. Morgan, the Hunt brothers, hockey great Wayne Gretzky, Buddy Ebsen (aka “Jed Clampett”), film director Penny Marshall, and actress Nicole Kidman are among the ranks of avid coin collectors.
Investing in coins, whether bullion or numismatic, can be both rewarding and profitable for collectors. At the same time, those rare, numismatic coins do not make up a large market, so collect them first for fun before considering them as an investment. If you believe you have one or more truly rare coins in your collection, you may just have a valuable asset to add to your portfolio.
We think you’ll also like:
- An Investor’s Guide to Productive Assets, Physical Assets, and Other Tangible Assets
- Three Tangible Asset Investments to Delight Your Inner Child
- Investing Basics for Beginners Installment #2: Investing Is Risky, But Not Investing Is Riskier
[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):
- Basic Investment Principles 101 – From Asset Allocations to Zero Coupon Bonds 2019
- Goal Based Investing – Planning for Key Life Events 2019.
- Earning Green by Investing Green
This is an updated version of an article originally published on January 22, 2014 and previously updated on December 30, 2019.]
©2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
Share this page:
