The rise of alternative assets has extended to all sorts of areas such as to invest in coins. Although dividend investing will always be a worthwhile investment strategy, it still requires keeping a close eye on company reports. For those who enjoy combining collecting and investing, coin collecting, as with stamp collecting and investing in wine are an interesting opportunity. As with every investment, you will be attracted by the profit but what are the downside risks?
Why should you invest in coins?
How you can start with less than £100
The unforeseen risks you should know about
Investing in coins is also known as investing in numismatics. In both cases you are seeking old coins which may have some value because of an imperfection or a particular story. Both The Royal Numismatic Society and The Royal Mint have some helpful factual explanations about which types of coins have value.
With coin investing you have to be careful which type of coins you purchase. Bullion coins are valuable due the underlying metal and its price (e.g. gold), so it is more of a commodity investment. Commemorative coins are just that, they remember something but few rarely appreciate significantly.
Only one type of coin is useful for investment purpose: These are Numismatic coins. These are old coins which were designed for circulation but over time appreciated in value due to defects or rarity.
Coins have outperformed most asset classes according to a study by Knight Frank. This return is all the more impressive when you consider the incredible support stockmarkets have had as a result of quantative easing. Also consider that older coins are no longer being created, as a result they are a finite asset: over time the value should grow.
After years of non-existent inflation, inflation is likely to make a return. Spreading your investments is sensible, especially into a ‘hard asset‘ such as coins which are likely to keep their value. In an age where cryptocurrency trading is all the rage, holding physical asset which you can actually barter with is useful!
You can invest as little as $70 when you get started. Of course this will require you to know a great deal about coin investing as you will need to know which coin can be bought cheaply and which has great appreciation value. An example of such a coin is the 1950-D Jefferson nickel which can sell for as little as $70.
To invest in coins means storing yourself. As a result it limits speculation (it is hard to transfer the ownership of the asset quickly). Looking at the history of coin prices also shows less volatility than other asset classes.
Although we encourage wealth creation, it helps when something is fun to do. Searching antique fairs or car boot sales for old coins could lead to a discovery of a rarity worth a fortune!
The fundamental value of a coin is the metal which it is made of: gold, silver or copper for example. The year when a coin is also important. For example the last coins before the declaration of independence in the USA will have greater value. Yet because of the demand of a coin, usually because it is rare or imperfect, the value can increase. This can unfortunately lead to some coins being over valued.
It will take you time to build up the knowledge of which coins to invest in and then secure it at the price you want to pay for it. Coin investment is very much a long-term investment. You will need a collection of coins, not just a few (unless they are the sought after ones) before your collection has any value.
Most people will keep their coin collection at home and due to the value will want to insure them. If you insure them as part of your house insurance, your premium is likely to increase markedly. Not insuring them is also an option but the cost due to theft may be too big to bare.
There is a boring side to investing in coins, you will have to look after them. This means buying albums and holders to store them and finding a clean, dry location with ambient temperature. Try telling your partner that you need an entire cupboard in today’s world where storage space is at a premium. Over time it may get so big and valuable you may end up wanting to leave it your bank’s safe deposit box – at extra cost!
Although coin collecting has grown over recent years, it is still a small market. As a result selling your coins may not be as easy as you would like. Be prepared to be patient and even refuse bids if they do not meet your expectation.
To invest in coins is like any other asset, you should start small and give yourself a margin of safety. Coin investing requires knowledge and patience. It is also subjective, the value that one main place on it, may not be what another places.
Ideally you will start with a coin which is universally recognised as having value but which won’t appreciate quickly. This will limit the risk of losing any money but lead to capital appreciation. Over time a buy and hold strategy such as this will grow your wealth as you add more coins to your collection. Happy hunting!