In the U.S., coin collecting became a popular hobby and investment instrument almost as soon as the first coins were struck. Although the first coin collectors originated in England during the 16th century, there have been a myriad of U.S. collectors who have established and profited from impressive rare coin collections.
Rare Coins as an Investment Instrument
Today, rare coins are considered by many just as much for their investment value as they are for their collectability. In fact, the potential investment value of rare coins has been featured in numerous financial publications and popular news outlets, such as Barron’s, CNBC, Money Magazine, and the Wall Street Journal. Investment professionals from recognized firms and individual financial planners alike have touted rare coins as a sound investment strategy. Most investors adamantly believe that every investment portfolio should contain a percentage of rare gold and silver coins. Many astute investors believe as much as 25 percent of an individual’s overall finances should be placed in the form of rare coins. Simply put, rare gold and silver coins have been an integral investment strategy of insightful investors for quite some time.
Coins have long been recognized as an investment tool for increasing an individual’s capital and securing their retirement for many years. However, not only do coins appreciate in value over an extended period of time, but they also are a terrific way for investors to balance out their portfolios and hedge against their rapidly fluctuating dollar-related holdings. Rare coin investors take delight and comfort in knowing that their coin investments consistently increase in value over time, as opposed to the dollar, which is constantly depreciating due to inflation. The strengths of precious metal and rare coin investments become all the more evident in periods of economic recession and hyperinflation like we are currently experiencing.
The recent influx of rare coin investment activity suggests that more and more individuals are recognizing that rare coins are an excellent long-term investment. Every investor should consider rare coins as a stable approach to diversifying their portfolios. All too often, inexperienced investors develop portfolios based entirely on stocks and bonds. However, as experienced investors have witnessed and modern investment portfolios are showing, an individual should take a serious look at investing in assets that act as a counter to the U.S. dollar and any securities that are directly tied to it. By taking this approach, an individual can spread out their portfolio and greatly reduce risks. For example, a person who invests in rare coins and precious metals can use these hard assets as a way of hedging against downward trending currencies and securities. If the dollar-related assets in their portfolio suffered significant losses, their overall portfolio might still perform well because of its diversification.
Determining a Coin’s Value
In order to successfully invest in rare gold and silver coins, an investor should be educated in rare coins and identifying their value. The value of a rare coin relies just as much on the coin marketplace as it does on the coin’s physical condition. The relationship between the rarity of a coin, or set of coins, and the market demand determines the coin’s value.
As stated, the condition of a coin is a factor in establishing its value. Most U.S. coins were originally issued for circulation and saw much use. Many coins have been mistreated over time or used solely for everyday commerce, which has severely decreased their numismatic value. However, certain coins, such as early colonial coins, early silver coins, rare gold coins, and early copper coins, are an exception to this rule and have increased greatly in value over time. Though these coins are almost impossible to find in uncirculated condition, it is possible to find “Almost Uncirculated” grades of these coins for many issues.
Coins are classified into two basic categories: Mint state and proof. Mint state coins can be defined as coins that were never circulated amongst the general public, although they were initially intended for circulation. These coins come in 11 different grades ranging from MS60 to MS70. These grading classifications simply measure a coin’s state of preservation. Proof coins, on the other hand, were never meant to be circulated. These coins were meant as specialty collector coins and were handled with extreme care.
A coin’s level of wear, design, luster, color, and specific strike all contribute to its overall appeal to collectors. Each of these factors affects a coin’s aesthetic appeal and can greatly increase the demand of an individual coin or the set it belongs to.
Certain coins are typically in high demand from collectors who desire a specific coin or need it to complete a particular set. Demand is also controlled by investors who look to sell their coins at the optimal time in order to make a profit. Other factors greatly increase demand for a coin or set of coins. Some of these factors include a coin’s historical significance, prior market prices, and its origin.
The rarity of a coin also greatly affects its price. Like anything else, rare coin prices are affected by the concept of supply and demand. Coins can either be fundamentally rare or conditionally rare. A fundamentally rare coin is a coin that was not minted in large quantities. For instance, if less than 500 pieces were minted then there can be no more than 500 collectors that own that particular coin. Other types of coins may have been minted in large quantities, but certain conditions, such as excessive wear or a poor striking, have led to their rarity. In both cases, the rarity of these coins drastically increases their demand and value.
Investing with Coin Sets
A particularly rewarding rare coin investing strategy is building or acquiring rare coin sets. Historically, sets of rare coins have extremely high appreciation rates in both bear and bull markets. As with any form of investing, having a strategic investment plan is necessary for achieving profits. Rare coin collectors are much better off when they limit their scope and focus on one specific area of collecting, versus purchasing random coins with no relation to each other. Focusing on an investment plan that enables rare coin investors to collect rare coins in one specific category, such as a complete set, places them in a better position to profit from their collections. Sets of rare coins offer collectors much more liquidity than collections of coins that are unrelated to each other. Coins sets are more highly sought after and fetch a premium in the rare coin marketplace.
How to Build a Set of Rare Coins
Sets of rare gold and silver coins are determined by the dates and specific mintmarks of a particular coin series. For instance, a set of gold dollars would have one coin or piece for each mint and date in a coin series. Collectors could also assemble what is known as a gold coin Type Set. In a Type Set of gold coins, one coin in the set would be a gold dollar, one would be a half eagle, and so forth. There are other options in collecting rare coin sets as well. An individual could collect each type of set according to a specific historical period, die variety, or coin designer. Others could simply collect sets according to their mintmark. While others still prefer to collect the first and last date of a coin series. There really are no rules here. A variety of coin sets can be extremely valuable. The only determining factors are the rarity of the coins, the condition they are in, and the relation they have to each other.
When choosing rare coins for a set, an investor should choose each piece carefully and keep the following points in mind:
- Have a complete strategy in place that includes the acquisition and liquidation of a set
- Purchase coins over time, rather than all at once
- Unless a significantly profitable situation arises, be prepared to hold on to them for the long-term
- Be prepared to liquidate them whenever a profitable opportunity arises
Investing in rare coins may be a historically safe and profitable investment strategy, but there has never been a better time to begin investing in rare coins than right now. The combination of global economic uncertainty, wild market fluctuations, and rock-bottom interest rates has created a unique window of opportunity for profiting from the creation of a rare coin portfolio.
Anyone entering into the profitable world of rare coin investing should utilize the services of a trusted coin broker that has years of industry knowledge in the purchasing and trading of rare coins. A leader in the rare coin industry for years, and has helped hordes of coin collectors and investors gain critical knowledge and succeed in their rare coin investments.