In this article I look at how to invest in rare coins. Coin collecting is one of the fastest growing hobbies worldwide. I’ve been collecting coins for years and I’ve received some reader mail about the collection as I list it in the asset category on my net worth updates. So it only seems fitting that I write a post about collecting and investing in rare coins. If you’re looking for an alternative type of investment and if you want to invest in coins, here are some of my tips.
Contrary to what many believe, Royal Canadian Mint (RCM) coins are not what I would call an investment. Each year, the RCM makes hundreds of collector coins. Very few ever increase in value on the secondary market (ie. ebay, coin shops etc.). So if you’re looking for a solid coin investment you’ll have to look elsewhere. Before moving on to that discussion, I’ll cover some of the basics first.
Why Does a Coin Have Value?
A coin has an intrinsic value in 3 important respects:
- It is legal tender with a face value stamped on it. It will forever be worth its face value. Even older coins and banknotes that have long since been removed from circulation still retain their original face value.
- A coin, particularly older coins, have bullion value. For example, pre-1980 Canadian pennies were struck from copper and pre-1968 Canadian dimes and quarters were struck from silver. Today the precious metals that these coins were made from are worth much more than the face values on the coins themselves. I should mention here that it is illegal to melt coins down for their bullion.
- A coin can have numismatic value if it is sought after by collectors. They may be interested in it for a variety of reasons including its condition and rarity.
What Makes a Coin Collectable?
This is highly subjective as collectors have many personal and sentimental reasons for collecting coins. Here are some of the more popular ways that people organize their collections.
- Some collect certain coin denominations, such as 1, 5, 10, 25, 50 cent coins and even $1 and $2 coins.
- Some collect the annual date sets of circulation coins that are produced by the RCM each year.
- Some collect only gold, silver or copper coins.
- Some collect a specific series of coins such as Canadian Victorian coins, or Olympic coins.
- Some focus on collecting only RCM collector coins.
- Some collect world coins.
- Some collect Ancient coins.
- Some collect error coins.
The manner in which collectors organize their collections usually dictates what coins they find to be collectable.
Why Invest in Rare Coins?
Alternative investments are becoming more popular as investors seek to diversify their assets. Some investors are looking to invest in art, wine, coins and banknotes as a way to diversify. As with any other alternative type of investment, investing in rare coins offers diversification. Rare coins tend to hold their values and typically appreciate at an annualized rate of 10% or more over the long term. They’re also not correlated with the stock market so they can also serve as a way to store or preserve wealth. In fact, even during the financial crisis of 2008-2009 there remained strong demand at auctions for high quality rare coins.
Where to Find Rare Coins
If you’re looking to find rare coins forget about checking your pocket change! It’s highly unlikely that you’ll pull out a rare Victorian dime or the super rare 1911 Silver Dollar. Most likely you’ll find high quality, investment-grade rare coins for sale at auctions, coin shows and through coin dealers that specialize in the high-end market.
How to Invest in Rare Coins
As with any other type of investment you should first educate yourself before jumping in. For those interested in learning about coins, there is no shortage of information. The Royal Canadian Numismatic Association (RCNA) even offers a coin collecting 101 course for beginners. There are also annual coin guides that have lots of information about coins. They typically describe the different varieties of a particular denomination, contain information about mintages, and also provide a snapshot of “trend” market values. When it comes to Canadian coins the most popular guide is probably Charlton’s Canadian Coins.
What Makes for a Good Investment Coin?
When it comes to investment coins, the 2 most important qualities are their condition and rarity. Condition is key when it comes to investment coins. Coins are graded according to 1 of 2 scales: circulated and mint. Obviously mint condition coins are more valuable than circulated ones. The better a coin’s condition, the more valuable it will be. If you’re serious about investing in coins, you’ll need to learns the basics of how coins are graded.
Grading is an art, not a science, and over the past 25 years a variety of third-party grading services have been created as a way to provide some confidence for collectors and investors about the grade and authenticity of the coins that they are buying and selling. The two most popular coin grading companies are the International Coin Certification Service (ICCS) and the Professional Coin Grading Service (PCGS). So if you’re looking to buy some high end coins, chances are that they will already come graded by one of these grading services. Other grading services do exist but I would highly recommend researching the company as not all grading services are equal.
In nearly every denomination of coinage there are certain dates that are difficult to find. More often than not, they are usually older coins dating from before 1950. Collectors refer to these as “key date” coins because of their scarcity. A rare, key date coin in mint condition can have astronomical value. For example, in 2003, the ultra rare 1911 Canadian silver dollar sold at auction for $1,000,000. While this is an extreme example, it is not uncommon to see mint condition, rare, key date coins sell for tens of thousands, even hundreds of thousands of dollars at auctions.
The investment coin market behaves like any other market with regard to supply and demand. As more and more people take up coin collecting, it becomes harder and harder to acquire the older, key date coins in any condition, let alone mint condition. This demand will likely continue to drive up the value of these coins for many years to come.
What are Some Pros and Cons of Investing in Rare Coins?
Owning rare coins as an investment has both its rewards and its risks just like any other investment. As mentioned above, one of the great things about rare coins is that they are not correlated to the stock market. So they provide a level of diversification to your asset base. As is the case with precious gemstones there will likely always be a market for high quality rare coins which means that they should continue to appreciate over time.
The primary risk of owning rare coins is that they can become illiquid. There is no guarantee that you will be able to find a buyer for the coins. I’ve seen some really great coins that went unsold at auction. So just because a coin is rare does not guarantee that someone will buy it from you and if you seek the help of a coin dealer to find a buyer, you’ll have to pay a fee. Another downside to owning rare coins is that they are not income producing assets. They do not pay you to own them so you are counting on them to appreciate in value.
For more information about rare coins and how much they’re worth, check out the 2016 Guide to Canadian Coins by Charlton
If you’ve enjoyed reading this article, see my other articles on coins and paper money: