Coin
collecting is both a popular hobby and an investment. Coins are usually
not a short term investment, as some experts recommend a holding period
of three to five years, and preferably five to ten. The supply of coins
is fixed, since only a given number of coins are minted per year,
adding to the potential value of coins. Unlike securities markets, the market for coins is
unregulated. Consequently, discerning decision-making is critical to
avoid purchasing overvalued coins and, in some cases, counterfeit
coins.
Risk and Return
Like any market, the coin market fluctuates due to supply and demand
conditions. In addition, inflationary expectations fuel the coin
market. Despite the implication of a high return in many ads for coins,
there is a great deal of risk in coin investments. Consequently, the
decision to invest in coins should be accompanied by recognition of the
risk involved and a decision to investigate thoroughly prior to
purchasing.
Coin dealers may offer a buy-back policy, for a limited time
and not necessarily at 100% of the purchase price of the coin. A
buy-back policy or return policy permits the purchaser to get a second
opinion. However, the investors should not be led to believe that these
firms are affiliated with the US Government.
Coins can be purchased through various channels, including
dealers. The US Government has also sold coins on occasion. However,
coin collectors may not be able to purchase directly from the US Mint.
Instead, US government coins may be distributed by coin dealers and
retail establishments. However, this process does not make these firms
agents of the US Government.
Grading
Since mastery of coin evaluation takes years of research and
experience, coin investors must depend on experts to determine the
value of their coins. Value is determined by the information on the
coin, its condition, its metal content, and supply. Coin grading is a
subjective art, meaning that not all dealers will agree on coin
evaluations.
The simplest form of grading is the distinction between
circulated and uncirculated coins. Standard conditions of coins range
from "about good" to "proof". There are approximately seven grading
scales or systems in the industry. However, no one scale is regarded as
standard.
The primary ways to learn to evaluate coins are through
historical research and physical inspection of coins. However, when
time does not permit, investors can seek the advice of experts, either
from dealers, or through numismatic association's grading services.
Associated Costs
It may be necessary to pay for coins to be graded or tested. If
investors plan to shop for coins using a list circulated among dealers,
the investor may incur brokerage fees. These and other issues may add
to the cost of investing in coins and should be considered prior to the
purchase.
Storage/Insurance
Coins should never be unprotected nor handled with bare hands. Prior to
the purchase of coins, thought should be given to their storage and the
need for insurance. Safe deposit boxes are typically used to store
coins. Insurance is available to cover the transportation of coins in
addition to covering the storage of coins at home. Your home insurance
may cover coins. Check with your insurance agent.
Regulation
The market for coins is currently unregulated. That is, there is no
federal, state, or local agency, like the securities markets' SEC,
which requires periodic filing of information from firms and enforces
regulatory standards.
Commemorative Coins
Coins or medallions are issued periodically to commemorate historic
events in limited quantities. These coins are collected mainly for
their beauty, artistry or historic value. Their value is determined
primarily by the limited supply. The price usually equals a premium
plus the market price of the metal. Historically, they are not legal
tender and would not be accepted in transactions. Legal tender coins
are used for daily transactions. But, if a commemorative coin is also
legal tender, it could, in theory, be used for transactions. However,
the coin would not be used for purchases since its metal value alone
may be greater than the face value stamped on the coin.
Organizations and Resources
The problem with investing in coins is not a lack of information, but
the need to reduce the quantity available to a manageable number of
sources. Published material on coins abound. The key is to identify the
information that will be useful to you. Magazines and catalogs are
available from clubs, bookstores, and libraries. Dealers publish prices
regarding various coins in these periodicals which are used as a guide
to prices but are not the actual price. The literature collected will
depend on the investor's special interest.
Numismatic organizations include local clubs, regional organizations,
and national associations. These groups may provide literature, grading
services, and/or auctions. Membership fees may be required to take
advantage of these services. However, the advantages to having access
to this information may be valuable.
Inquire about the services offered by organizations in your area and
whether you need to be a member to use these services. The following
groups may be helpful:
American Numismatic Association
818 North Cascade Avenue
Colorado Springs, CO 80903-3279
718-632-2646
The American Numismatic Association is a non-profit educational
organization composed of coin collectors of any age. It publishes a
monthly magazine, maintains a library, and provides a grading service.
American Numismatic Society
Broadway at 155th Street
New York, NY 10032
212-234-3130
The purpose of the American Numismatic Society is the collection and
preservation of numismatic options. They maintain a library and
collection of related numismatic items.
Glossary of Coin Terms
Bagmark
refers to a nick, small cut, or mark on the coin surface.
Broker
brings buyers and sellers together by negotiating contracts and acting as an intermediary for a fee.
Bullion
metal in the form of bars or ingots.
Coin
metal money; used in exchange as having value.
Commodity
an economic good as a product of agriculture or mining.
Die
a mold into which molten metal or other material is forced creating a coin.
Fineness
the purity of gold or silver always expressed in terms of one thousand parts.
Grade
the condition or state of wear of a coin.
Hedge
means of protecting against financial risk.
Legal tender
money that may be offered legally in satisfaction of a money debt and
that must be accepted by a creditor to that end when so offered.
Mint mark
a symbol usually a small letter used to indicate at which mint a coin was struck.
Mint state
uncirculated - refers to a coin which has never seen circulation.
Numismatics
the study or collection of coins, tokens and paper money and sometimes related objects.
Obverse
side of a coin or currency bearing the principal lettering.
Proof
refers to a manufacturing process which results in a special surface or finish
on coins made for collectors.
Reeded edge
the edge of a coin with grooved lines that run vertically around its perimeter.
Restrike
a coin or metal struck from an original die at some time after the original issue.
Return
the rate of profit in a process of production or investment per unit cost.
Reverse
the back part of a coin.
Rim
the raised portion of a coin encircling the obverse and reverse which protects the designs from wear.
Risk
possibility of a loss also to probability of a loss.
Series
one coin of each year issued from each mint of a specific design and denomination.
Striking
refers to the process by which a coin is minted.
Unique
an item of which one specimen only is known to exist.
Wear
the abrasion of metal from a coin's surface caused by normal handling and circulation.
These terms are derived from
Webster's New Collegiate Dictionary and the
ANA Grading Standards for United States Coins.
Tips
- If you are doing business with a dealer:
- Consult your local Better Business Bureau for the company's past record prior to doing business.
- Check the dealer out with other collectors or numismatic
organizations. Reputation is an important factor in making a purchase
decision.
- Determine the dealer's return policy prior to completing a transaction.
- For the particular coins you are considering buying:
- Research as you would for any other investment.
- Compare prices among dealers, as prices can vary substantially.
Price varies depending on information contained on the coin, condition,
metal content and supply.
- If a specific return is advertised or claimed by the seller, ask for substantiation.
- If it appears to be a bargain, it probably is not. Find out why.
