Considerations for Investing In Rare Coins
By Mark Ferguson for CoinWeek – MFRareCoins.com
Prices of rare coins appreciate because new money enters the rare coin market vying for their limited supply. They decline in value when selling rare coins becomes a trend and buyers take their cash out of the coin market en masse. Rare coins are a “store of value” asset class and they generally perform well during inflationary times – sometimes extraordinarily well! Like fine art, as an investment, rare coins don’t produce anything except pleasure for the people who collect them.
Of course, not just any old coins are likely to appreciate in value when the coin market trends higher. Common sense dictates that a collector/investor in rare coins will achieve the best results by developing a plan for investing in them and then carefully selecting the right coins to purchase. Considering the circumstances in which you will sell those coins is also a good idea to include in an investing plan.
The first step in developing such a plan is to determine the purpose for investing in rare coins. For example, are the coins to be held purely to ride an upward market trend and then sell, or are they to hold and pass on to a younger generation of family members. Are you, the investor, genuinely interested in collecting rare coins, or do you just want to buy some coins, stick them in a safe deposit box at your bank, and then forget about them until it’s time to sell. If the later is your interest level, it’s probably better to stick with investing in bullion coins rather than numismatic coins that have collector values. With bullion coins you can simply monitor the prices of precious metals in the financial press. With numismatic coins you’ll do best financially by getting involved in the collecting of them.
After you determine your purpose for investing in rare coins you’ll need to determine the amount of money you want to invest. Will it be a one-time lump sum investment, or will it be periodic investments on a monthly, quarterly or annual basis, for example? Or will it be a lump sum followed up by periodic investments?
Do you have personal areas of interest within the rare coin market? Some people like rare gold coins, while others like silver dollars, or historical, early coins of the U.S. Mint, which began striking coins in 1792. Do you have an interest in just acquiring a few high-end rarities with significance within the numismatic market, or do you feel more comfortable in building a comprehensive collection, or holding large amounts of coins in bulk quantities?
I would like to stress that when purchasing rare coins go for coins that are not easily replaced, in other words, not easily found in the market. If you go to a coin show and are able to find multiple examples of a coin you are looking for this will bite you in the end when you want to sell. People can just shop around for the best price for that coin, leaving you in a weak selling position. Or if you buy from major auctions and find multiple examples of what you are looking for in auction after auction, you might want to change your strategy. Buy coins that don’t show up in the market very often because when you go to sell them multiple buyers will by vying for those coins because they are difficult to find, thereby attracting higher prices when you sell and competitive buyers who will pay the extra price.
Another consideration is to think about the length of time you want to hold the rare coins you invest in and what economic trends will be present when you want to sell your coins. Such considerations will include whether you believe only wealthy people will be buying rare coins when you want to sell, or whether people of average means will be collecting. It’s probably safe to say that if middle class people are spending money on coins, the wealthy will be buying as well.
However, there are individual trends within the coin market to consider also. A primary consideration is: what have the trends within the coin market been during the past decade or so? For example, during the roaring 2000s wealthy individuals have been buying up the high-end early coins of the United States, which were minted prior to the introduction of steam presses during 1836. Will this trend continue? Early commemorative coins, which were struck between 1892 and 1954, never really caught an upward trend in popularity during those rising market years of the 2000s, and their prices have remained steady, while prices for most other coins rose significantly. The market for high-end silver dollars ebbs and flows over the years, as does the market for particular series of coins, like Barber coinage, struck between 1892 and 1916, and high grade Buffalo nickels, for example, which were struck between 1913 and 1938.
How will you monitor the trends within the coin market during the time you hold your investments in rare coins? Will you be so involved in the collecting and investing of rare coins that you will easily be able to maintain an awareness of what’s going on in the coin market, or will you monitor the coin market by following particular newsletters and websites? Should you subscribe to a publication like The Coin Dealer Newsletter, which all the dealers use? Or will you just stay in touch with the primary coin dealer/agent who you use to represent you in the market?
Of course, it’s important to keep in mind the timing of when you plan to sell your rare coins. The market won’t necessarily be ripe for selling at the time you’re ready to sell, such as upon retirement, or when you want to send your son or daughter to college. In addition to monitoring trends within the coin market, it’s a good idea to keep in mind how you believe the coin market will react to particular outside economic events and trends. For example, rare coins will very likely perform well during a rising inflationary trend, but is the Fed able to quell inflation by raising interest rates? Or, is a very serious depression just around the corner in which very few people, including the wealthy, will want to buy rare coins?
Finally, are you adept enough to do your own purchasing of coins? Can you spot the trends? Are you comfortable enough to scrutinize the grading of coins, especially for certified coins – are they solidly graded, high end coins, or do they just barely make the grade? Do you get out there to the major coin shows around the country, or do you need a representative who’s active in the national market?
If you use a coin dealer/agent it’s a good idea to somehow check out the reputation of that dealer. Is the dealer known in the business? What do others think of him or her? It’s easy to make mistakes in buying rare coins, and often buyers don’t find out they’ve made mistakes until years later when they try to sell their coins. Do you trust the experience level and integrity of your coin dealer? Does that dealer have the nationwide contacts to adequately serve your needs?
These are some of the primary considerations you should make when choosing how to plan out your investment in rare coins. By being careful, numerous investors have profited handsomely from their investments in rare coins. But others have made mistakes by not carefully thinking through their plan. Which type of investor do you want to be? Choose to work closely with a coin dealer who will help you think through these considerations and who is competent enough to adequately serve your needs.
Mark Ferguson was a coin grader for PCGS , a market analyst for Coin Values and has been a coin dealer for more than 40 years. He has written for the ANA, Coin Dealer Newsletter, Coin World, Numismatic News, , Coin Values, The Numismatist and currently has a weekly column on CoinWeek. Mark can be reached at Mark Ferguson Rare Coins ( www.mfrarecoins.com)