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Although most coin collectors hope their collections will increase in value over time, serious investing in gold coins and rare U.S. coinage requires careful planning. Learn about coin collecting as an investment -- what types of coins to buy, and why, and how to avoid the costly mistakes that many new rare coin investors make.
Today, rare coins are considered sound investments and in fact have been featured numerous times in the Wall Street Journal, Barron’s, Money Magazine, on CNBC, and numerous other financial publications. Investment professionals from Harry Browne to independent financial planners have recommended some portion of one’s investment portfolio to contain precious metals and rare gold and silver coins.
Investing in gold coin is unnecessarily costly. This is due to a numismatic premium, typically related to the antiquity and rarity of the coin. This is why gold coins are more expensive than the same amount of gold bullion bars. Unfortunately, the extra features of gold coin that you're paying for won't necessarily go up in value, which is why precious metal coin is a poor investment.
Fraudulent sellers of rare or bullion coins are hard to identify because they often copy the practices of their legitimate counterparts. It takes a combination of patience and skill to be successful investing in rare or bullion coins. Collectors do their homework for a long period of time before buying even a single coin. It is important to learn all you can about the coins being sold, such as their rarity, market availability and price trends. You also need to know about the dealer who is offering the coins. Because fraudulent sellers often appear to be reputable, it is especially important to check the information you are given and who is giving it to you.
These price-driven internal supply/demand forces are very powerful. Because of these internal forces, coin investing can experience a bull market even in the absence of bullish external forces. And that's exactly what happened during the internally driven bull markets of 1960-64 and 1983-89. What's really exciting is when both internal and external forces combine to generate the 1976-80-style bull market.
Now compare your situation with mine. If you are offered a $100 coin for considerably under $100, there is a good chance the coin is being misrepresented (possibly counterfeit, but most likely over graded). Just remember: rare coin investing allows for no bargains.
Remember, rare coins are not a liquid investment. That means that they cannot generally be resold quickly for a profit. If you need to sell your rare coins quickly and the market is down, you could lose money on your investment. Also, although you will buy your rare coins at retail prices, you will probably sell them at wholesale prices. In fact, most investors hold on to their rare coins for at least ten years. It may be very difficult to find a buyer. Beware: telemarketing scammers (using a new name) often target previous rare coin buyers for victimization using claims that they can help sell your rare coins.
Morgan Dollars are a popular investment vehicle for coin collectors these days. Before you invest in Morgan Dollars, however, take a moment to consider a few thoughts about rare coin investing, because although there are some excellent investment options out there in Morgan Silver Dollars, there are also some pitfalls to avoid.
Your best protection against buying over graded coins in your rare coin investing pursuits is to learn to grade accurately. However, grading is a difficult skill to master. Still, you can be aware of the basic grading concepts. Carefully examine every coin you purchase. Notice how sharply the details of the design stand out. Take note of all major and minor marks. Now compare the coin with another, preferably of the same type. The coin with the greatest detail and fewest marks is logically the better coin. But also seek professional assistance because… rare coins are often over graded.
Government coinage policy can also have a negative impact, as was seen when the government stopped making proof sets from 1965-67, stopped putting mint marks on coins from 1965-67, and, most importantly, took the silver out of coins in 1965. This action put a real damper on coin collecting and stopped the 1960-64-bull market.
The fact is: It is very difficult to identify fraudulent sellers of rare and bullion coins because they often look like legitimate dealers. For example, fraudulent sellers frequently have elegant offices in the financial districts of major cities, employ "account executives" or "investment counselors," and produce glossy, attractive brochures on investment strategy. They may claim to have leading coin experts on their staffs, or claim to be the largest or finest dealers in the business. Because fraudulent sellers often appear to be reputable, it is particularly important to check the information you are given.
Lately, the government has definitely been the coin market's friend. The statehood quarter program, beginning in 1999 and running through 2008, has literally brought hundreds of thousands of new collectors to the coin investing market. In addition, the government's resumption of commemorative coin production in 1982, and the improved marketing efforts of these coins in the 1990s, has given coin collecting a big boost.
Inflation may allegedly be dead, but the fact is that the U.S. Dollar has lost 95% of its purchasing power since 1940, and rare coins are a superb inflation hedge. In the past, the rare collectible coin market has always done very well in periods of increasing inflation.
This was clearly evident in the 1970-74 and 1976-80 bull market. Coins can also do very well when the stock market does well, as was evident in the 1960-64 and 1983-89 bull markets.
Investing successfully in rare coins, like any other type of investing, requires that you learn everything you can about the subject before you buy the coins. Most rare coin frauds rely on the buyers' lack of knowledge, as exemplified by these tips from the FTC.
