Investing in coins
Rare coins can be collected as a hobby and a popular form of investment, and are historically one of the oldest forms of collectible. For thousands of years they have also been one of the most portable assets, and the rare coin market remains one of the most liquid collectibles markets.
They are included by the Wall Street Journal on their investment scoreboard under the category ‘Rare Coins, top investment grade’, and the market has been buoyed in recent years by the sales of several coins valued at $1 million or more.
Investing in rare coins usually means a long-term investment, but the large numbers of collectors and the strong demand means a strong level of liquidity. The coins with the most rapidly-appreciating value are those in the best condition; often a ‘gem-condition’ example of a more common coin is far more valuable and sought-after than an average rarity.
Coin collecting has been a popular hobby for thousands of years, back to the times of Ancient Greece, and few investments offer both the insight into history and level of satisfaction that building a collection of rare coins can.
The Baldwins Coin Index represents a diversified portfolio of English hammered and milled coins that were originally selected from The Coins of England Annual book and have been updated each year for the past 15 years. The index shows a growth that over a period of seven years between 1998 and 2005 the value of the coins rose by 128%, with a compound annual growth rate of 12.5%.
The index showed that the value of an Elizabeth I Sovereign coin rose from £3,100 to £8,500; an increase of 174%. It also tracked the value of a 1723 George I SSC shilling which rose from £85 to £300, an increase of 253%.
Size of markets
There are estimated to be millions of coin collectors worldwide, with around 50 million in the United States alone.
A study in 2010 stated that between 1998 and 2008, the number of U.S collectors purchasing rare coins with a value of $1,000 or above had tripled over that period.
The market for rare U.S coins is believed to be worth around $10 billion per year. Due to the increasing numbers of middle-class collectors in the emerging economic markets of Russia, India and China, the figure of collectors worldwide is set to rise even further.
Where to buy investments
Rare coins can be bought from a number of different sources including dealers, dedicated auctions and online bidding sites. There are thousands of specialised rare coin dealers worldwide, but as with every form of collectible it is important to buy coins from a reputable company. For investment-grade coins dealers often recommend purchasing examples certified by either the NGC or the PCGS, as their gradations are recognised across the rare coin market. It will also guarantee the authenticity of the coins, and mean they are easier to sell in the future.
Most valuable investments
The field of coin collecting offers a wide array of opportunities from entry-level to high-end investments. The best-performing coins are the rarest and finest quality examples, due to a limited supply and an ever-increasing demand as the hobby continues to grow.
Coins are valued primarily on their rarity and condition. A wealth of information on coins means its rarity can be easily deduced, but for investment-grade coins the important factor then becomes its condition. There is a 70-point grading system known as the Sheldon system by which the majority of coins are rated. Investment-grade coins are generally those with a rating of ‘40 Extremely Fine’ or higher, depending on their rarity. These are the most sought-after examples available, and as other collectors strive to complete their sets or collections the demand for them will be far higher than the same coins in worse condition.
The development of ‘registry sets’ has added another level of competition to rare coin collecting and investing. Once a ‘set’ has been completed, it can be graded by one of the professional grading companies and the results are then published. This means the market prices for even some common, late date coins has been driven up by registry set competition for the finest graded examples.
Researching the markets
It is important for anyone investing in rare coins to research the market first. There is a large amount of information available when researching the value of rare coins. There are detailed histories that can trace many coins from the mint they were produced in, through the hands of various collectors to the dealer currently selling them which is an invaluable aid to proving authenticity and provenance.
In the case of many rare coins there are so few in existence that every existing example can be traced, and research into the history of coin design and minting can help collectors identify fakes and forgeries.
There a large number of clubs, societies and organisations which can help collectors and investors with their information and experience. These range from local collectors clubs to international organisations, and can be invaluable tools for entry-level investors looking to value or authentricate a coin.
There are several third-party services which exist to objectively determine the authenticity and condition of coins. The two largest of these are the Professional Coin Grading Service (PCGS) and the Numismatic Guarantee Corporation (NGC). Both these companies encase the coins to protect them from future damage and assign each a unique serial number, so that its identity may be verified. They both issue a written guarantee of their conclusions on the authenticity and condition of the coin, and their opinions and guarantees are widely respected in the rare coin industry.
For rare U.S. coins valued at more than $1000 each, more than 90% of respected dealers will sell only those that are certified by the PCGS or the NGC. Coins with a grading from either of these companies are currently valued higher than those without a large number of dealers.