Investing In Coins: A Beginner's Guide To Getting Started

Investing in rare coins is a popular way to diversify your portfolio and reduce risk. Rare coins are considered a commodity-like investment, with the potential for attractive financial returns. The coin market has changed drastically over the last few decades, and investors need to be aware of the risks involved, including fraud and market fluctuations. Before investing, it's important to study the market, specialise in a specific type of coin, and buy from reputable dealers.

Diversify your portfolio with coins

Diversifying your portfolio with coins can be a great way to reduce risk and volatility. As with any investment, diversification is key to minimising risk and maximising returns. Here are some ways to diversify your portfolio with coins:

Diversify Across Cryptocurrencies

A simple way to diversify your portfolio is to add new tokens to your existing holdings. You can invest in a range of cryptocurrencies with different market caps, from large-cap to small-cap. Bitcoin, for example, is a well-known large-cap cryptocurrency, while there are many emerging small-cap cryptocurrencies to explore. You can also buy different types of tokens, such as stablecoins, utility tokens, and governance tokens. Additionally, look for cryptocurrencies that span different industry sectors, such as gaming, file storage, environmental protection, and finance.

Tokenized Assets

Blockchain technology allows for the tokenisation of assets, where investors can own fractional or full stakes in digital or physical assets. These can include real estate, art, music, collectibles, and precious metals. Tokenised assets provide an opportunity to diversify your portfolio beyond traditional cryptocurrencies.

Crypto Derivatives (Advanced Traders)

The cryptocurrency market has developed a range of derivative financial instruments for advanced traders. These include futures contracts, options contracts, and perpetual swaps. Crypto derivatives can provide additional diversification to your portfolio, but they also carry significant risk, so proceed with caution.

Traditional Investments

While diversifying into cryptocurrencies is essential, maintaining a balance between crypto and traditional investments is crucial. Limit your crypto investments to 5-10% of your total portfolio to manage risk effectively. Traditional investments such as stocks, bonds, and real estate can provide stability and diversification to your overall portfolio.

Collectible Coins

Investing in rare and collectible coins can be a rewarding strategy. Rare coins are considered a commodity-like investment, and their value can increase over time. It is important to specialise in a particular type of coin, such as classic United States coins or gold bullion coins. Building expertise in a specific area will help you make more informed investment decisions. Additionally, work with reputable coin dealers and seek guidance from experienced collectors to minimise the risk of fraud.

Know the difference between numismatic and bullion coins

When it comes to investing in coins, it's crucial to understand the difference between numismatic and bullion coins. Here's a detailed guide to help you know what sets these two types of coins apart:

Bullion Coins:

Bullion coins are primarily valued for their precious metal content. The weight and purity of the metal are the key factors in determining the value of bullion coins. They are often purchased as an investment, inflation hedge, or for survival purposes. Bullion coins are typically manufactured year after year and are widely circulated. Examples of bullion coins include Canadian Gold and Silver Maples, American Eagle Gold and Silver Coins, and South African Krugerrands. The value of bullion coins is closely tied to the spot prices of gold, silver, or platinum, and they are sold with low premiums.

Numismatic Coins:

Numismatic coins, on the other hand, are considered collectibles and are valued for their rarity, historical context, condition, and collector demand. These coins are no longer produced in modern times and are sought after by collectors. Numismatic coins may not have as much inherent value in terms of metal content, but their value lies in their uniqueness and collectability. Examples of numismatic coins include pre-1933 $20 and $10 Eagle coins and Peace Silver Dollars. The value of numismatic coins can be many times higher than the value of the precious metal they contain.

Key Differences:

The main difference between bullion and numismatic coins lies in their purpose and valuation. Bullion coins are acquired for their metal content and as a means of investing in precious metals, while numismatic coins are sought after by collectors and valued for their rarity and historical significance. Numismatic coins often carry a larger risk and higher premium, and their value is determined by the laws of supply and demand. Bullion coins, on the other hand, have intrinsic value due to the gold or silver content and are less susceptible to trends or fashion.

In summary, when investing in coins, it's important to understand your goals. If you're primarily interested in the metal content and a stable investment, bullion coins may be the better choice. However, if you're a collector attracted to the rarity and historical context of coins, numismatic coins might be more appealing.

Understand the risks of investing in rare coins

Investing in rare coins is not without its risks. Here are some key considerations:

Volatility and Fluctuations

The rare coin market can be volatile and is subject to fluctuations. Coin prices are influenced by supply and demand dynamics, and while rare coins are generally considered a stable investment option with a consistent appreciation, their value can be impacted by various factors, including government policies, the performance of other investment vehicles, and inflation.

Counterfeit and Doctored Coins

The risk of counterfeit and doctored coins is significant. Beginners may be fooled by altered coins, as these may have been manipulated to hide defects or misrepresent their condition and value. It is crucial to only buy from reputable dealers and ensure coins are certified by trusted grading services.

Illiquidity

Rare coins can be less liquid than other investments. It may be challenging to sell or exchange them quickly, and finding a buyer willing to pay the desired price can take time.

Storage and Insurance Costs

The costs of securely storing and insuring a rare coin collection can be ongoing expenses that investors must consider. Additionally, proper preservation and storage are essential to maintaining the condition and value of the coins.

Specialized Knowledge Required

Investing in rare coins requires specialized knowledge and expertise. Investors must dedicate time to research and educate themselves about the market, coin grading, and authentication.

Long-Term Investment

Rare coins are typically a long-term investment strategy. They may not be suitable for investors seeking short-term profits, as their value tends to appreciate over time.

Subjectivity in Grading

The grading of rare coins can be subjective, and subtle differences in appearance or condition can significantly impact their value. Well-known grading houses and reputable sources can provide a point of reference, but investors must be aware of the subjectivity involved.

Learn how to spot a coin's grade

Coin grading is a subjective area, with no scientific or factual scale to base grades on. It is, however, a crucial skill to have for any serious collector. Grading standards may vary, but there is a degree of consensus among numismatists and dealers. The overall appearance of a coin is highly subjective, but the better the condition, the higher the grade and the higher the value.

The primary purpose of coin grading is to determine the coin's market value. The value of a coin is dependent on how well the coin was initially struck, its level of preservation, and how much wear and damage it has sustained.

There are several grading scales used by different countries and organisations. The most common scale is the Sheldon Scale, which ranges from Poor (P-1) to Perfect Mint State (MS-70). The most common coin grades on this scale are:

• (P-1) Poor - Barely identifiable and possibly damaged; must have a date and mintmark if used; otherwise, pretty thrashed.
• (FR-2) Fair - Worn almost smooth but lacking the damage a coin graded Poor usually has. Enough detail must remain to identify the coin.
• (G-4) Good - Heavily worn such that inscriptions merge into the rims in places; major features are mostly obliterated.
• (VG-8) Very Good - Very worn, but all major design elements are evident, albeit faint. Little if any central detail remains.
• (F-12) Fine - Very worn, but wear is even, and overall design elements stand out boldly. Almost fully-separated rims from the field.
• (VF-20) Very Fine - Moderately worn, with some finer details persisting. All letters of LIBERTY or the motto are readable. The rims on both sides of the coin are full and separated from the field.
• (EF-40) Extremely Fine - Lightly worn; all devices are clear, and significant devices are bold. The finer details are bold and clear but may show some evidence of light wear.
• (AU-50) About Uncirculated - Slight traces of wear on high points of the coin's design; may have contact marks, and eye appeal should be acceptable.
• (MS-60) Mint State Basal - Strictly uncirculated; no evidence of wear on the highest points of the coin but an ugly coin with subdued luster, noticeable contact marks, hairlines, etc.
• (MS-65) Mint State Choice - Uncirculated with strong mint luster, very few contact marks, and excellent eye appeal. The strike is above average.
• (MS-69) Mint State Almost Perfect - Uncirculated with perfect luster, sharp and attractive strike, and very exceptional eye appeal. A perfect coin except for tiny flaws (only visible under 8x magnification) in planchet, strike, or contact marks.
• (MS-70) Mint State Perfect - The perfect coin. There are no microscopic flaws visible under 8x magnification; the strike is sharp, and the coin is perfectly centred on a perfect planchet. Bright and complete, it has the original luster and outstanding eye appeal that is rarely seen on a coin.

The UK has its own grading scale, which includes the following grades:

• FINE (F): A coin which shows considerable wear to all its raised surfaces, but only its highest spots are completely worn. Its main design, features, date and lettering are clearly readable.
• VERY FINE (VF): A coin where all the fine detail is present, but not the 'minute' detail and signs of wear and tear to its higher points make it obvious that it has been in circulation but only minimally.
• EXTREMELY FINE (EF): A coin with much of its mint lustre, sharp detailing and little sign of being circulated - with only its high spots suffering from slight wear on close inspection.
• UNCIRCULATED (U): A coin that shows no wear at all, other than bag marks or minor mass production scratches, and looks as it did when it left the mint with all its finer details intact and with full lustre present.

Study before you buy

Before investing in rare coins, it's important to do your research and understand the market. Here are some key considerations:

Understand the Basics of Tangible Asset Investments

Tangible assets, also known as hard assets, can be a great way to diversify your investment portfolio and reduce risk. They often include income-producing assets such as timberland, farmland, and commodities like precious metals and coins. Understand how these assets fit into your overall investment strategy.

Specialize Your Investment Selection

Focus on a particular area of interest, such as a specific time period, denomination, or theme. This will help you build a more valuable collection over time. Even a small collection can be valuable if it is well-curated and focused.

Study Values, Denominations, Rarity, and Grading

Familiarize yourself with the factors that influence coin values. This includes denominations, rarity, and grading terms. The Fleur-De-Coin (FDC) indicates a perfect mint state, while the Sheldon grading scale of 1 to 70 is an industry-standard used by grading services like the Professional Coin Grading Service (PCGS) and the Numismatic Guaranty Company (NGC).

Consult Reputable Sources and Experts

Read books, articles, and online trade magazines to educate yourself about coin collecting. Join reputable coin communities, talk to experienced collectors, and consult trusted guidebooks. Consider finding a mentor who can guide you through the process and help you make informed decisions.

Be Aware of Potential Fraud and Counterfeits

Coin collecting is not without its risks, and fraud is a potential issue. Be cautious of false claims about grading, current value, and buy-back options. Always examine coins in person, research coin dealers thoroughly, and get a second opinion. Be wary of unsolicited communications trying to sell you coins or precious metals.

Understand the Market Fluctuations

The rare coin market can be volatile and is influenced by supply and demand. Understand that coin prices can fluctuate, and be prepared for potential gains or losses. Rare coins are generally considered a long-term investment, and short-term profits are less common.

Frequently asked questions