Coin collecting, or numismatics, has a long and interesting history. Ever since we first started minting currency, people have been collecting coins, but more recently, there has been a lot more focus on their value.
Rare coins have achieved prices of hundreds and even thousands of pounds which is why many people see coin collecting as an investment opportunity. Even so, investing in coins can be a challenging alternative asset to develop expertise in.
What’s the appeal?
Although coins can be profitable investments, this is a sector where fun comes first and generating a return comes second. That’s partly because predicting the price of coins can be so difficult. Understanding the future value of a coin can be a complex undertaking and even experienced investors get it wrong.
However, there are profits to be made. Some limited-edition coins and notes have sold for thousands. For example, a rare £2 coin which was minted in 2002 for the Commonwealth Games, was sold on eBay for £1,200.
Building a collection
Before building a collection, beginners should spend as much time as possible on research to develop their knowledge. Decide upon a theme for a collection such as an era, monarch or country and learn everything you can about that particular area.
Know-how is valuable and will be crucial in creating an effective collecting strategy. The more you know about your chosen category, the easier it will be to take the guess work out of the process.
Bullion coins versus sovereign coins
You should also avoid any confusion between bullion coins and rare sovereign coins such as Greek or Roman coins. The former refers to coins which are regularly minted, such as Krugerands, which contain precious metals.
With bullion coins, you are investing in metals rather than the coins themselves and the price will be set by the precious metals markets. The latter is coin collecting as we would understand it and the prices are set by dealers.
The rules of buying
Understanding and evaluating the true value of a coin can be a complex process and it will revolve around a number of factors including:
1. Mintage
The total supply of a particular coin will depend on the mintage. Most countries mint a coin for each year. Only a finite number of that coin will ever be minted.
2. Demand
Demand can fluctuate depending on trends. For example, when the Lincoln Cent was redesigned in 2009 it sparked renewed interest in collecting older copies of the coin. The ebb and flow of demand can be difficult to spot and even harder to predict.
3. Survival rate
Not all coins minted will survive. Some will have been damaged and returned to the treasury to be reclaimed for their metal. Others might have been lost or destroyed. Those coins which contained precious metals might have been melted down by their owners.
For example, when the price of gold or silver has surged many coins became more valuable for the metals they contained instead of their face value.
4. Grade and condition
As with other collectibles, coins are rated by their grade and condition. The most valued coins are those in almost pristine condition – which look as if they have just been minted.
Collectors often save coins and take them out of circulation as soon as they were minted. These will be the most sought after, but supply and demand will depend on trends during that time.
For example, uncirculated coins from times when coin collection was not very popular are very rare. More recent mintages when more collectors are removing them from circulation are much more common.
5. Minting process
You will also need to understand the different forms of manufacture. Ancient coins such as Roman or Greek coins tend to be hammered. This was the common form of manufacturing coins from antiquity until around the 15th to 17th centuries when coins began to be made using casts. These used a cast into which the metal was poured and gave each coin a more uniform look.
More modern coins are machine milled. In numismatics, these refer to any coins which were made by machine rather than being hammered out by hand. Many of these have milled edges which make it impossible to shave the coin down for its metal content. They also made the design more complex and counterfeiting more difficult.
The right price
Collectors need to distinguish between the price of a coin and its value as these are very different things. The former relates to the retail price which you can purchase a coin for, and the latter refers to how much a retailer will buy a coin from you.
Retailers will typically add a considerable mark-up which means you will be buying above the coin’s value. If you were to sell it, you might struggle to match that price, so you would need to hold it for a long time before it realises any significant gain.
It is also important to know how many coins of a particular type that a dealers has in their inventory. The more they have, the lower you would expect the value to be.
Where to buy?
You can buy coins from dealers, but you need to make sure they have a trustworthy reputation. You can find a list of reputable dealers at Numis.co.uk.
Buying from an established dealer with a long trading history will help you avoid some of the more unscrupulous players. Some of the best include Spink which was founded back in 1666, or Dix Noonan Webb.
You may also try visiting coin exhibitions such as Coinex. Not only is this a good place to buy and sell coins, but it offers the opportunity to mingle with other collectors, build your own experience and make new contacts.
What about tax considerations?
As with many hobbies, something that starts out as a fun and interesting pastime can quite easily develop into a proper commercial venture. It is not unknown for people to turn their hobbies into businesses.
If you do find yourself buying and selling coins in greater volumes and with increasing frequency (and at a profit) then strictly speaking you will probably be deemed a trader or dealer by HMRC and you should register as a self-employed business.
Anything else to think about
Collectable coins are, in many cases, historic artefacts and their value depends on their condition. This is especially important as you may have to hold a coin for a prolonged period of time in order to see a significant gain in value.
Rare coins should be stored in hardwood boxes and handled with gloves. An uncirculated coin in perfect condition will be extremely valuable so you need to keep it in that condition.
If you’re hoping to cash in on your collection it also makes sense to ensure it is kept in a secure environment and that it is adequately insured.
Risk warning
The recent popularity of coin collection does have a dark side. In an environment in which it is difficult to determine value there is plenty of scope for fraud and misrepresentation.
An investigation from Which? magazine found an alarming number of instances in which dealers used misleading sales pitches to suggest a coin represented a better investment proposition than it actually did. They cited the story of a pensioner who invested more than £70,000 in a collection of coins only to find that it was worth a fraction of that sum.
If you are thinking of investing in coins, you should proceed with care. You will need to do your research and gain as much knowledge as you can about certain coins and the market in general to gain insights into ongoing trends.
The market is unregulated, so any financial investment will not be protected by the Financial Services Compensation Scheme, so it is a good idea to view investing in coins as supplemental to other investments and to never commit more capital than you can afford to lose.
Further information
You can find out more about numismatics and investing in coins from online resources such as numismatics.org.uk and The Royal Mint. Both provide a huge amount of information to get you started.
