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Rare coin investing
The ‘rare coins’ market represents
a compelling from of alternative investment. Providing sufficient
due diligence is undertaken forming a portfolio, coin investment
can offer both the opportunity for attractive returns and
low correlations with other assets. The market is, by its
nature, supply constrained. As such, growing interest in
the market should support rising prices over the medium
to long term.
The most liquid markets for rare coins are
generally within their country of origin. ‘Ancient
coins’ are generally defined as those that were produces
prior to c 500 AD and date back as far as 600 BC, when the
earliest known coinage was introduced. As such, quality
is a key determinant of value. Prices are determined at
auction and liquidity is provided by a base of world wide
collectors.
Diversification
As a developing class of alternative investments, rare coins
benefit from low correlation with other investments and
in some cases offer more liquidity than other like real
estate and venture capital.
Inflation hedge
Unlike fixed income investments such as bonds, prices of
ancient coins should rise in line with general economic
growth and inflation.
Good potential long-term
returns
Although the spectrum of potential returns varies widely
across different individual coins and collections, recent
auctions have highlighted that attractive returns can be
achieved. Long term collections (50 years plus) have achieved
compound annual returns of between 8.7%-10.5%. The FTSE
All-Share has delivered a compound annual return of 7.8%
over the last 42 year period.
Short term returns
also attractive
Although past performance is no indication of future growth,
a random portfolio of gold and silver coins, selected from
the Spinks auction catalogue over the last 6 years, would
have generated a compound annual return of 12.0%.
A growing market
For the above reasons, interest in the rare coins market
has increased over recent years; rare coins represent a
relatively large and increasingly liquid alternative investment
market, offering investors the ability to diversify their
portfolios in order to achieve potentially higher returns
and lower overall portfolio volatility.
A good time to diversify?
The US coin market has recovered steadily from a bubble
that burst during the early 1990s, but prices remain significantly
below that of the peaks reached towards the end of the 1980s.
The recovery has coincided with a lacklustre performance
from equity markets - the S&P 500 remains 32% below
its March 2000 high. Although the global economy has begun
to recover, the outlook remains unclear given concerns over
high consumer debt and rising oil prices.
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