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Rare coin investing can be profitable for long-term investing
Collectables are an asset type that can help investors diversify their portfolios away from stocks and bonds. Unlike securities, the value of collectables typically isn’t tied to market trends. Instead, their worth is influenced by a range of different factors, including demand.
With coin collecting, as with collecting other items, the more rare the coin, the more valuable it is. Investing in such coins has the advantage of potentially providing significant profits, however, it also has downsides to consider, including the fact that earning money investing in them takes time.
Learn more about the pros and cons of investing in rare coins, and how to include them in your portfolio.
Key Takeaways
- Rare coins can add diversity to a portfolio that is focused on stocks and bonds.
- Investing in them can potentially provide long-term gains, but is not ideal for short-term profits.
- The rare coin market can fluctuate like the stock market as demand for particular coin increases and wanes.
- In general, these coins are a fairly non-volatile asset type.
Is investing in rare coins a good investment?
Historically, rare coins have offered significant profit potential above and beyond the underlying metal value of a coin. Prices of elite coins have appreciated over 1,000% from 1976 to 1980 and 600% from 1982 to 1989, according to Finest Known, a rare coin newsletter.
Investing in rare coins is no substitute for traditional investments to reach your financial goals. However, this asset can help you diversify your portfolio and reduce risk.
The rare coin market has changed significantly over the past few decades. Grading coins, or verifying their authenticity and defining standards, was opened to third-party grading services in the 1980s, which helped remove some of the risks of investment. What’s more, the internet also brought the opportunity to access more knowledge about coin collecting, rare coins, and buying coins online.
If you’re just getting started investing in rare coins, the consider connecting with a mentor who can guide you through researching the value and potential future value of coins. You can also learn about this field by collecting through coin shows, reading books and articles, talking to coin dealers, and joining coin clubs.
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Balancing your coin portfolio
Just as with any investment, a balanced coin portfolio reduces your risk of market fluctuations and provides greater potential for returns. Having a variety of US coins, precious metals like gold bullion coins, and classic gold coins like the double eagle can improve your portfolio’s diversity.
Rare coin collecting is not ideal for making short-term gains. “Coin flipping” is a strategy that does aim for short-term gains with coins, but it can be risky. With this strategy, you buy a low mintage coin directly from the mint and then try to quickly sell it for a larger profit. You could lose money if you miss the opportunity to sell quickly or the market becomes flooded.
Avoid bubbles
The rare coin market isn’t free from market fluctuation. In fact, it can even be volatile at times. Coin prices depend on supply and demand. If a demand for a particular coin or series of coins gains in popularity, the price can soar only to crash later if the coin’s popularity decreases.
Coins aren’t like shares of stock
One difference of investing in rare coins compared to shares of a company is that coins are not alike, while a share of a particular company is worth the same as another share.
Two 1900 Buffalo Nickels, for example, may not be the exact same price even if the coins have identical variations and the same grading. They may be valued differently because of subtle differences in the coin, such as one looking slightly better than the other. Investing in rare coins is more unpredictable in that way.
(Hero and Feature Image Credit: Dan Dennis/Unsplash)
This story first appeared on www.investopedia.com
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