If you’re considering taking up rare coin collecting, it’s easy to see why you might be drawn to the hobby.
“For over 2,000 years, numismatics — the study of coins, tokens, medals, and paper money — has been a fascinating pursuit for many,” said Donn Pearlman, spokesman for the Professional Numismatists Guild and winner of the Farran Zerbe Award, the highest honor bestowed by the American Numismatic Association. “In addition to providing hours of enjoyment and entertainment, coin collecting offers unique educational experiences spanning a variety of subjects, from history and geography to chemistry and economics.”
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But that’s not the hobby’s only allure.
“Some items have shown dramatic increases over the years, rewarding those knowledgeable individuals who have wisely purchased,” said Pearlman, who orchestrated the 2003 industry event that led to the discovery of the famous missing Walton specimen of the 1913 Liberty Head nickel. “However, if you are new to numismatics, there are a few things that you should understand and keep in mind when purchasing rare coins and currency for possible future appreciation.”
Here’s what you need to know before you start building your collection.
Make Sure You’re Ready To Invest
Pearlman said that step 1 is to make sure you won’t have a near-future need for any money you plan to invest in coins.
“They are to be considered a long-term holding, with the best gains coming over a period of many years,” he said. “Coins and currency are a hedge and should be part of a diversified portfolio. Putting all, or even most, of your money in one place is rarely a wise move.”
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Become a Student of the Game
In numismatology, as in life, there is no substitute for knowledge.
“Like stocks, bonds, artwork, or real estate, numismatics is a highly specialized field with its own terminology and rules of the game,” said Pearlman. “In the past, the greatest financial gain has accrued to those who have taken the time to read, study and learn the basics before making a large cash outlay. Plunging in based on the promises of a telephone salesman who solicited you is a formula for disaster. On the other hand, taking the time to learn about rare coins and currency, attending a few shows at which they are sold or traded, doing some research on the subject and carefully evaluating your financial goals and personal interests can open the door to an exciting, fulfilling hobby, and could very well pave the road to possible future financial gain.
Know What Makes Rare, Valuable Coins Rare and Valuable
When purchasing rare coins, one of the most important considerations is their grade, or state of preservation.
“Their value often is highly dependent on their grade because sometimes very small differences in quality can translate into very large differences in value,” said Pearlman. “For that reason, several independent services have been established that render an impartial opinion on the grade and authenticity of a coin or bank note. These services then seal the coin or note in a plastic container or holder with its grade indicated. The process is called certification, and it may provide your best protection against buying an item that is over-graded and consequently overpriced.”
According to Pearlman, the two most respected grading services are:
- The Numismatic Guaranty Company (NGC)
- The Professional Coin Grading Service (PCGS)
Work Only With Reputable Dealers
In the rare coin world, who you buy from is often more important than what you buy — and establishing a relationship with a skilled and respected dealer is one of the keys to success. Pearlman offered the following tips.
1. Check Their Reputation
When you find a promising dealer, contact the Professional Numismatists Guild or other trade organizations for references.
“Don’t be fooled simply by fancy brochures and flowery advertising,” said Pearlman. “A few phone calls or emails could be the best insurance you’ve ever purchased.”
2. Consider Dealer Longevity
Pearlman said to examine any dealer with less than five years in business with an extra dose of scrutiny.
3. Ask About Guarantees
Pearlman says that reputable dealers guarantee their coins since they want to establish long-term relationships and not just make one-off sales.
4. Check Organizational Memberships
Industry organizations hold their member dealers to a high standard of professional excellence.
“PNG members, for example, must adhere to a strict code of ethics and must agree to a binding arbitration process for any disputes involving numismatic merchandise,” said Pearlman.
5. Attend Major Coin Shows
Major coin shows draw some of the country’s top dealers, who you can meet and talk to face to face.
“There is one somewhere in the nation nearly every week and there most certainly will be one within driving distance of you in the next six months,” said Pearlman. “While there, get to know some of the dealers on a personal level. Above all, ask questions.”
Beware of Unbelievable Bargains
The if-it-sounds-too-good-to-be-true rule that governs all investing also applies to rare coins.
“The biggest and costliest trap many new collectors get caught up in is the bargain price, good deal, or the something-for-nothing offer,” said Pearlman. “There is no Santa Claus in numismatics. No dealer gives something away substantially under its true market value. Every dealer is in business to make money and should be allowed a reasonable profit on each transaction. But to believe that a dealer will sell you an item for less than its wholesale value is naive, to say the least. If you are offered merchandise priced significantly under the market, it’s probably safe to assume that the goods are over-graded, overpriced, or misrepresented in some way.”
Be Leery of ‘Modern Rarities’
Many newly minted coins are marketed through advertisements and direct mail as semi-numismatic coins or private rarities. They’re often commemorative coins struck to honor a special event or person and packaged in special presentation boxes with certificates of authenticity.
“These pieces are sometimes touted by third-party marketers as good investments because of their theme or restricted low mintage,” said Pearlman. “While occasionally some of these do appreciate in value, the majority of these modern issues — including some of those produced by the U.S. Mint — have ended up valued at close to their bullion, or melt value, or below their issue price, leaving the owner with an expensive box and certificate.”
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This article originally appeared on GOBankingRates.com: Want To Invest in Rare Coins? Here’s How To Get Started
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