Sunday, October 3, 2010

Coin collecting as an investment

In this hobby, every once in awhile you hear something that is just plain earth shattering. Sometimes those are the moments that make it the most worth it. Well the other day was one of those moments for me. A long time friend of mine came to me for investment advice. Nothing out of the usual about that until he told me it was his broker that told him to do so.

He said I should invest 10% of my portfolio in coins.”

Wow. He continues,

I don't know anybody else to get good advice from and I want to try to get the most value. It's a hedge against volatility.”

Gold and silver prices have been rallying in the month of September, and already many predictions are being made that gold will continue to rise to $1500 an ounce.

Precious metals do well in these turbulent times, that's no secret. And there is another contingent of investors predicting inflation which also helps to bump the price up. So it's only natural that the demand for gold and silver coins will naturally rise as well.

But coin collecting throws even more scarcity into the mix. We're not just collecting little heaps of metals we pull from the ground. Coin collecting is collecting a piece of history. One of my most prized possessions is an old Phoenician temple tax silver coin of Tyre from roughly 25 B.C. What a turbulent time in history, and the stories that coin could tell as it passed from hand to hand!

And it's amazing that even 2000 years ago men were collecting silver and gold to hedge against their own troubled times. How little things change.

So is coin collecting a good investment to make now? Well here is the advice I told my friend.

Yes, gold and silver prices are high. But coin collecting isn't just about buying at point A and selling at point B. Some of my most prized coins aren't even the most scarce or even the most valuable. There is so much to learn about numismatics, the subtle nuances in form, condition, value, and collection themes that makes it much more difficult to appraise than standard equities.

It's very common for the average lay person to end up getting swindled by quick talking sales firms, especially during these times of incredible hype. Usually they end up over paying and under selling their coins. Since their reputation as a reputable dealer is non-existent, their ability to find knowledgeable buyers is much less. Often times they have to go right back to the firms that sold them their investment and find out their coins were incredibly over-valued, or weren't told about hidden fees that reduce their purchasing power by 20% or more.

But there is still more to coin investing than doing your research and staying away from shady firms. Who is to say that prices will remain high in the long term. Buying up gold and silver coins now may end up looking like a fools errand in a few years if the stock market rallies again and gold comes crashing down. Then all you'll be left with is the memories and history of those coins, which is where the real value of coin collecting derives regardless of where the price of gold and silver stands on a particular day.

So if you are going to invest in coins: invest in coins. Not the particular chemical element or compound that it happens to be composed of. Coins stand the test of time, and not just a few years of boom-bust market memories, but literally hundreds and thousands of years. Coins watch entire Civilizations rise and fall.

Even in the roaring 90s when precious metals were crashing I was hunting rare coins and flipping them at 1000% of the price. So gold and silver coins that have value will hold their own in the long run and are a great defense against inflation and volatility. Be on the lookout for that, for many of the silver coin editions being stamped out now for the price of metals alone, may only wind up as a nice conversation piece on your mantle in a few years.

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