When you say investing the typical person usually thinks stocks, bonds and possibly real estate. While these three areas are main avenues where people can invest idle funds, investing is much more broad than these three assets classes. For example, human capital is a huge investment society and individuals make. Whether it is public school, college or other technical certifications, these all constitute an investment being made in human capital. The idea of diversification when investing is something that is frequently preached, but often not fully understood.
Today the financial markets have made it very easy to invest in all sorts of assets. Gold and sliver were once assets that had to be held physically by an investor, yet today they can be held virtually and traded daily. We have come a very long way in terms of providing options to investors tools to utilize when selecting different forms of investments. One option that has been around for thousands of years is the collection of currency as an investment. When we speak of currency in this post we will be referring to coins.
All coins, whether modern or ancient, carry some form of stated value. For example, a U.S. penny is worth 1% of one U.S. dollar. The stated value is the value the issuing agency (government) is assigning to the currency being circulated. Some coins have an intrinsic value that goes above and beyond the stated value. A silver Canadian coin that is listed as being worth five Canadian dollars is intrinsically worth more than the Canadian government’s backing of the five dollars. Assuming the coin is composed of one troy ounce of silver, the actual value is around 20 Canadian dollars (as of November 2016). Sliver has its own value that is independent of the currency of a government. Therefore, the Canadian coin made of silver is not only an authorized instrument of commerce by the Canadian government, but it is also a valued commodity (silver).
As a coin collector, you can view your collection as an investment in two different ways. The most straight forward method would be to look at your coins as an on-hand currency hedge. All things being equal, if the
U.S. dollar dropped in value, the value of your gold or sliver coins expressed in dollars would be worth more. In the case that the trust in the U.S. government collapsed and the ability to use U.S. backed money faltered, the coins containing gold or silver would still be an instrument of trade. It would not matter if the coin said it was issued by the U.S. or another country. The value would be held in the amount of gold or silver the coin contained. Other precious metals like platinum or copper would be applicable, as well.
A second method of achieving investment value from the collection of coins is via the uniqueness or scarcity of a coin. This is much different from looking at a coin in terms of how much precious metal is contained within a coin. Precious metals are quoted daily in terms of their value per ounce versus a given currency. The value associated with the uniqueness or scarcity is a product rating agencies used by coin collectors and dealers. Estimations of value can be found in coin collector books that are regularly published. The Whitman publishing company releases The Official Red Book and the Professional Coin Grading Service have resources that establish value to rare coins.
To give an example of owning a coin in which both investment routes as described above are covered, look at the coin shown below. It is a coin released in honor of the centennial anniversary of Yosemite National Park. The coin contains one once of sliver. Therefore, it will always have at least the worth of what the market states for one ounce of sliver. The coin is also unique. It is one of 5,000 made and the Curry Company that took part in minting the coin no longer exists. Its scarcity factor can potentially increase the coin’s value among other coin collectors.
Coin collecting is comparable to other collectors items, whether it be cars, cards, or stamps. One of the main ideas behind collecting such items is that they will either hold their value (an inflation hedge) or appreciate in value with the passage of time. None of these collections is a ‘sure thing’ in terms of its future value, but we can look at history as a guide in terms of what will probably occur in the future. Collectibles are investments, just as a share of Pepsi stock is an investment, even though they take a different form.
Investments come in many forms and diversification must be thought of beyond holding funds from X number of sectors. Coins and other collectibles, if done in a prudent manner, can serve as a valuable form of portfolio diversification.