Most likely, you probably consider collecting coins the same as investing in coins. While that might make sense at some level, there are many differences. Understanding the differences between coin collecting and investing in coins can help you avoid making many all too common mistakes.
The difference between coin collecting and coin investing is the intent of the collector and investor. One may pick up a coin because it makes a good collection great, regardless of its value. The latter will only consider coins that help improve their bottom line or achieve their investment goals.
Within both of those definitions are nuance and secondary considerations. If those are not accounted for, both collector and investor can fail to achieve their goals. Here is a rundown of coin collecting from an investment standpoint and how to avoid common investment mistakes collectors often make.
Is Collecting Coins A Good Investment?
Coin collecting can be an investment, but the outcome is never assured and for many, the potential yield is not significant enough to justify even a modest risk. However, many coin collectors have managed to use coins as a hedge investment to varying degrees of investment success.
Others have purchased rare and valuable coins that will increase in value over a period, but not until the coins are put on the market. Most collectors have value in their collections, but not enough to count as an actual investment if “investment” is defined as an initial outlay of funds with the promise of an increased return over a specific period.
What all that means is whether your coin collection is just a collection, a collection with value beyond what you have paid for it, or a money-making proposition, depends on what comprises your collection. To understand that, consider the following examples.
Coin Collecting As An Investment
Person “A” invests in rare and valuable coins specifically to put money in an instrument that will maintain its value and grow over time, based on the reputation of the coins, and whether the coins are put up for sale. For that person, coin collecting can be considered a worthwhile investment because the market for rare and valuable coins has always existed.
The wild cards are how long it will take to sell a rare and valuable coin and what another collector was willing to sell.
Coin Collections With Value But Not Investment Intent
Person “B” owns a coin collection that is worth a significant amount of money. That investment has come with a set purchase price, broken up across coin purchases. If the owner decides to put the coins on the market, they will likely make money, but how much is purely driven by the market. A wildly positive market will yield a great return, and a suppressed market will yield less.
Coin Collections That Have Value But Little Investment Potential
Person “C” has a coin collection that has interesting coins and some of them are worth more than the face value of the coin, but not much more. This type of collector collects because they like coins and collecting. They have no intent on selling their collection and will increase it over time, but with only modest outlays of funds.
Buying In Bullion
The final type of coin investor is the person that purchases coins, usually special edition, precious metal coins, mainly for their bullion value. These types of purchases are often done by those that feel economic collapse or social unrest will disrupt the normal money supply and the free market. The purpose of these purchases is to hoard coins for use in emergencies.
Of the 4 types, the first example is a legitimate investment strategy, although the efficacy of such an approach is debatable. The next 2 are not as neither have a return normally associated with traditional investments. The last approach, ironically, is an investment of sorts, although making money on the investment is not a goal in and of itself.
Can Coin Collecting Be Profitable?
If done with a goal of investment, buying coins can be profitable. It requires a few characteristics to be successful.
Zero Emotional Attachment
Emotional attachment to a coin or a collection can obscure the judgment it takes to decide to sell. That can mean a sale is lost or the seller must settle for a price that is less than optimal. To be a successful investment, a coin must be sold for a profit. Holding back on selling because of an emotional investment undermines the intent of investing in coins.
Accurate Value Assessments
To be profitable, coin collecting must be based on real-time evaluations. The market price cannot be based on market sentiment or clinging to “what should be.” The seller or buyer must have the best estimate possible of what the articles they are interested in cost. Otherwise, the buyer or seller risks paying too much or selling for too little, respectively.
Market Sense
As with any investment, the goal is to “buy low and sell high.” That means the buyer or seller must have a strong grasp of the market and how it is affected by the larger economy. For instance, in an economic downturn, many sellers might be willing to sell at a lower rate than normal, but fewer buyers will be on the market. In a good economy, it is easier to get an asking price for a coin or coins, but a buyer will likely pay higher than usual for what they want.
A Plan
Throwing money at a coin just because it is expensive is not a worthwhile investment strategy. Paying for a coin that has long-term viability and growth potential is part of a good strategy. If a collector wants to make money off their coin collection, understanding where each coin falls in terms of its investment potential is vital to ensuring that profit is always the goal.
The smartest approach to developing a plan if you are trying to profit off coins is to treat coin purchases and sales as no different than any other investment. Develop a strategy with goals for what to buy and when to sell, what type of coins to consider, and what coins to stay away from. The more you can map out your investment strategy, the greater your chances of success.
Research
Someone looking to profit off coins must know their market and the individual pieces of the market (in this case, coins) thoroughly. That means understanding the following:
- Coin lineage and history
- What drives its value
- Sales history
- Typical customer profile
- Coin market trends
- Potential investment pitfalls
Getting a grasp on each of those elements will help ensure that a coin or coin collection can and will be a profit center.
3 Factors To Consider When You Start Collecting Coins As An Investment
There are 3 factors to consider before you try and make money from coins, a collection, or collecting as an investment instrument.
1. Liquidity
An old investment adage is that you should only invest what you can afford to lose. The same applies to using coins as an investment instrument. If you only have a limited amount of funds to invest, there are more profitable instruments than coins.
2. The Coin Market
If the coin market is flying high and coins are selling at high rates, even if you are flush with cash, it makes little sense to invest in coins if you are treating them to make money. That is not to say you should wait until the market takes a downturn, but if you purchase coins at the top of their price, you will have to hold onto them for quite a while to turn a profit.
3. Knowledge
It is safe to say that the novice coin collector should not try and make money off buying and selling coins. The one exception is if they have a skilled mentor that can guide them through assessing value accurately and buying or selling at the optimum price.
A collector must understand the following:
- Inherent collectability and value
- Coin market trends
- Coin condition rating
Inherent Collectability And Value
Understanding the ceiling of worth for a specific coin or collection of coins requires understanding why collectors would want either in the first place. That requires understanding the coin market and the mindset of collectors, both of which can be variable and occasionally volatile.
For example, some coins are valuable because of their history. Others are valuable because of their content. The former is rarely affected by external influences, but the latter frequently is affected by the market price of precious metals. Understanding what makes a coin valuable to collectors is key to being able to maximize pricing at any given time.
Coin Market Trends
A common belief is that coins made of precious metals are recession-proof. This holds true to a point but is not universal. Some coins are affected by precious metal prices, particularly if they are not rare or have little or no historical value.
For example, during The Great Recession, there was a run on gold coins as a hedge investment. This drove up the value of gold bullion as well as any gold coins on the market. At its peak, gold topped $1,900 an ounce and that had a direct effect on gold coin prices. The same applied to silver prices, which affected silver coin prices.
In some cases, it made more sense to melt gold and silver coins for their bullion price. In other cases, selling a high-value gold or silver coin brought in record prices. Conversely, when the gold and silver markets collapsed, around 2009 to 2010, while some gold and silver coins were recession-proof, many coin prices were affected negatively.
Coin Condition Rating
The condition of a coin affects its value. Barring external influences, like its history, a coin in great condition will always outsell a coin in a roughed-up state. Understanding how coin conditions are assessed helps buyers and sellers make informed judgments regarding pricing.
Here are a few general rules.
- A rating of sixty is the threshold for a coin to be considered “uncirculated”
- Mint state coins are rare
- Not all coins need to be rated, but for investment purposes, rated coins hold the most value
- Because rating coins is subjective, you should always get a second opinion
- The person or organization rating your coins should not be allowed to purchase them
- Even if you are an experienced coin collector, a professional assessment is a wise idea
Each of these characteristics factor into coin value. Understanding each is paramount to getting the best prices possible for your coin or coins, whether you are buying or selling.
10 Mistakes To Avoid When Investing In Coins
1. Letting Emotion Drive Decisions
Just like you never bet on your favorite sports team, you should never let an emotional attachment or sentiment drive your coin buying or selling. If you have an attachment, either do not sell a coin or let an objective third party manage it. Likewise, if you really want a coin or coins, you should have an independent assessment to verify its value.
2. Too Good To Be True
Like any other market, coin markets are driven by a lot of influences, one of which is that everyone in the market wants to make money in one form or another. Any offer that exceeds market expectations in value should be viewed skeptically. The only real way you get a bargain when dealing with coins is if the person buying or selling is not familiar with coins and collecting.
3. Hot Tips Are Usually “Best Guesses”
No one knows how the coin market will perform or what coins will increase or decrease in value. It is just like the stock market. Even if you think you have spotted a trend, your assessment regarding that trend is a guess. That goes for everyone else involved in coin buying or selling. Not heeding this risks buying something that never pans out.
4. Not Insisting On Professional Assessments
Many coin collectors and dealers think they are experts at judging coin conditions. Others use tricks and loopholes to grade coins high, no matter their condition. The way to avoid that is to insist that the coin or coins you are interested in buying be professionally graded by one of the big name coin grading companies.
5. Trusting Your Own Judgment
You are not an expert at assessing coin value. Even professional assessors make mistakes and someone that does not do it professionally is more prone to make mistakes. Even if you are a professional assessor, you should never assess your own coins or coins that you are interested in buying. There are too many influences that can hinder your judgment.
6. Assuming International Coins Are Always In Demand
You can find many international coins that are always in high demand. Most, however, are not, regardless of how each is marketed. Always remember that no one ever undersold their coin or coins intentionally. Also, keep in mind that with international coins, low mintage numbers are meaningless in most cases.
7. Assume Knowledge
Many coin collectors read a few articles about a coin and assume they know all they need to know. This is often leads to collectors getting cheated. Before you spend a single penny on a coin or entertain any offers for a coin, make sure you have researched it thoroughly and know for certain its approximate worth. If you do not, do not make the transaction.
8. Falling For Deceptive Advertising
Many coin dealers are honest and strive to have happy customers. Some, though, are only looking to make a quick buck and will cheat as much as they can get away with. One example is the advertisements on television that promise “collectible coins” that are not actual currency. These often will only be plated with precious metals.
Another false advertising trend in coin commercials is promising equal resale value. This almost never happens. If you buy coins over the internet or television, except from very reputable dealers, expect that you will lose money on them or make more money melting them down.
9. Hurrying A Sale
Hurried buyers or sellers are prone to make mistakes. Take your time selling or buying a coin and make sure you know what you are getting. If someone is pressuring you to act, tell them you need to step back and take a cool-off period. If they are reputable, they will understand and grant you the time you need.
10. Looking to Get Rich Quick
You can “discover” that one coin everyone else overlooked and set yourself up for life. You can also dive into the ocean and discover a Spanish galleon full of gold treasure. Or you could win the lottery. The point is you will most likely never be confronted with a get-rich-quick coin deal that is not deeply flawed. Coins are long-haul investments with very few exceptions.
Final Thoughts
There are some key differences between collecting coins and investing in them. Coin collectors can invest in their collection, provided they follow some rules. Failing to do so can lead to a collector losing money. Always consult a professional before making any investment decisions.