The coronavirus pandemic caused unprecedented volatility in global markets. As a result, investors searched for more alternative ways to invest their cash.
This rush for stable assets saw an upsurge in demand for traditional havens like gold, which saw its value rise strongly during the pandemic.
Alongside investing in gold, there has been another gold rush; alternative investing in rare coins.
People who collect rare coins can amass a vast number of small investments that are all increasing in price.
So, is rare coin collecting a good alternative investment?
Rare coins are just as volatile as any alternative investment
If you invest in rare coins believing that it is a risk-free alternative investment, you would be wrong.
Rare coins are like precious metals and other alternative investment vehicles – demand and prices go up and down.
Although, there is some shred of evidence that rare coin investments are typically more stable than some other types of investments.
Rare coin investing is not as closely related to the global economy’s performance as the stock market is.
Still, fluctuations and investing in rare coins should be approached with the same due diligence and research you’d expect to do over any alternative investment.
Types of rare coin investing
Several investors will probably consider that the rare coin market predominantly consists of coins that are not in circulation for several years. Hence their rarity and, as the name suggests, rare coins.
The actual rare coin market is somewhat different from that perception. Trading non-circulatory coinage is only one segment of the rare coin market.
If you are buying old and rare coins that are no longer in circulation, these coins are referred to as numismatic rare coins.
Alternatively, which attracts more investors as part of their alternative investment strategy is the demand for rare bullion coin investing.
Bullion rare coins consist of a high concentration of rare metals, which is invariably gold. Meaning that their price is often closely tied to the price per ounce of gold rather than any other index.
Because of this, rare bullion coins are generally considered one of the less risky investments on the market.
For ease and simplicity, rare coin investing is very straightforward. One of the main reasons for this is the strong price correlation of the coins themselves.
Calculating coin values is related to the stock market prices of gold, meaning you can make fast decisions on whether to buy or sell a rare coin collection.
Depending on the type of rare coin you have, price fluctuations can be relatively stable. Thus providing a solid long-term investment, specifically if the rare coin consists of gold bullion or other precious metals like silver.
Numismatic rare coins, on the other hand, can be hard to determine their worth. If they are desirable, it will not matter what precious metals they consist of; the price will be determined by how much the buyer wishes to pay.
Coin collectibility matters
Coin collectibility is vital if investors wish to invest in numismatic rare coins.
When a commodity is collectable, it is easy to locate buyers.
Buyers wish to add to their collections, even if they are not rare coin investors per se. For instance, art is a collectable item, even if the buyer has no intention of flipping the art later on.
Should an investor manage to buy a coin that is hard to locate and is highly desirable, he or she can take advantage of this collectability and profit from a bidding war from rare coin buyers.
Thus, if you are considering entering the numismatic rare coin market, it certainly pays to do your research and focus on coin rarity rather than the precious metal content of a coin (like bullion coins).
Coins are easier to sell
Selling gold and other bullion coins will always be easy to sell when stock market values plunge.
Rare coins are highly liquid, meaning that there will always be demand for them in times of crises and pandemics.
Unlike digital NFTs and cryptocurrencies, there will always be people out there willing to back them due to their physical nature.
People tend to buy gold, bullion, precious metals and rare coins more than usual in a crisis or when stock markets falter.
Precious metals are viewed as safe havens, which can be advantageous for coin owners looking to sell their coinage during these moments.
You control selling
Unlike most traditional investments, selling rare coins has no ‘middle manager’ responsible for the performance of your investment.
Suppose an investment fund performs poorly. Investors pay for it with losses to their original capital and subsequent gains.
Maybe you invest in a company, and that business suffers due to lack of demand for its products and services or company mismanagement. Once again, you suffer as a result.
And there’s little you can do about either scenario.
Fund or company performance is a significant risk of investing in a traditional investment fund or a company instead of an actual physical asset like precious metals and rare coins.
Investing in coins means not having to rely on other people’s performance to make your investment profitable.
You control when you should sell your rare coin collection, whether to hold onto it for the long term.
What you should consider before rare coin investing
There are a few downsides to investing in coin collecting.
Although they shouldn’t detract you from investing in rare coins, investors should consider the below points.
There will be additional costs
There are likely to be some additional costs that you will probably incur compared to stock market investing for a start.
When buying rare bullion coins, the sellers themselves will typically add a premium to the price of the coins when selling to you. Much the same as they would do when selling gold and other precious metals.
These premiums are how sellers make their profit, and whether you agree with it or not, it is part of the business. For buyers, this means paying above the agreed value of the coins themselves.
Naturally, should you sell the coins in the future, you can add on this premium that you were charged initially if the person you sell to agrees with the price.
Beware of scams
At Monestro, we’re always trying to educate our investors, and one attitude we strive to achieve is to uncover scams.
We have noticed sellers overpricing their coins within the rare coin market, or falsifying their bullion content, or passing off ordinary bullion coins as rare collectable coins.
Other unscrupulous dealers even attempt to sell bullion coins with the same design as coins from national mints, like the Royal Mint in the UK or US Mint in the USA.
As always, do your homework before considering which coin types you wish to buy and scrutinise the dealer’s background.
Storage Can be Challenging
When dealing with precious metals, storage is another concern that investors will have to note. There is no storage to be concerned with when investing in stocks and shares, P2P loans, or other digital assets like NFTs and cryptocurrency.
But that is different with physical assets like art, wine, antiques, or rare coins because physical objects need to be stored somewhere secure.
Storing expensive rare coins in a secured storage facility will become expensive. These large sums will eat into any potential future profits you earn. So, think about where you will store your rare coins and their physical assets before buying.
Rare coin investing – an excellent alternative investment?
The market for rare numismatic coins is much tougher to quantify. These coins are dependable on their collectibility and thus should be viewed as a niche investment strategy.
If investors are looking for a high-growth strategy involving rare coins. In that case, rare bullion coins will be a more uncomplicated strategy to consider.
In conclusion, you could probably characterise the rare coin market by deciding when to buy, when to hold, and then when to sell. Prices stabilise for some years and could rise due to a world event; then, it becomes profitable to sell.
One thing for sure is that unless the coin is rare, it is unlikely to be a short investment strategy.