Is Coin Collecting a Good Alternative Investment?

There are many reasons why people are now looking towards alternative investments. It can often seem like the old stock market rulebook has been thrown away in the aftermath of the 2008 crash. Even after all the time that has passed, markets are still turbulent. And now the trouble in China are threatening things even further. It has never been a better time to start looking at the alternatives.

Alongside things like property investments, one of the big forms of alternative investing has been in coins. People who collect coins can amass a huge number of small investments that are all increasing in price. It’s easy to see why many people are drawn to this solid and reliable asset. But it’s important to know everything before investing your money. So, is coin collecting a good alternative investment?

The Price Correlates

If you’re looking for ease and simplicity, investing in coins might just be the best decision you ever make. There is no better way to keep things simple. One of the main reasons for this comes back to the strong price correlation of coins. When you want to calculate the value of your coin, you just look at the stock market prices of gold. That means that you can make snap decisions and new investments very quickly and easily. The whole process is a lot more laboured and complicated when you have to factor in lots of different variables that may affect an investment. Some of those variables also affect your levels of control, as we’ll discuss next.

You’re in Control

There is nothing in between the coin in your hand and the tangible value of it. Whereas if you invest in a company, there are all kinds of managers and workers who you have to rely on to secure that company’s value. If that manager makes a poor decision and the company takes the company into financial turmoil, you will pay for it. And there’s nothing you can do about that. This is one of the big risks of investing in a business as opposed to an actual physical asset. Investing in coins basically means not having to rely on other people too much. And that can only be a good thing for the sake of your long-term investments if you ask me.

Easy to Sell

No matter how bad things get or what the stock markets are doing, it’s always easy to sell gold coins. This is something that really doesn’t change. This means that they are highly liquid. Even in the event of a major crisis, there will be no trouble shifting them. A lot of this is thanks to the fact that they are physical, and there will always be people out there who are willing to back them. In fact, people tend to buy coins and gold even more than usual in a crisis. They see them as safe havens, and this can be very good for people who are looking to sell gold during a crisis of some kind.

Collectibility is Important

Another thing that makes coins very easy to sell is their collectibility. When something is collectible, it is very easy to find buyers. People want to build their collection, even if they aren’t bothered about the investment side of collecting coins. There are always collectors out there who are looking to buy, and you can take advantage of this. If you are lucky enough to find yourself in the possession of a coin that is very hard to find, you could have collectors fighting to buy it from you. This can lead to a bidding war, and a bidding war is always a good thing for the person doing the selling. So, make sure you get to know which coins are seen as most desirable by existing collectors.

There Are Extra Costs

There are some downsides of coin collecting as a way of investing though. These are what we will look at now. For a start, there are some extra costs that you will probably incur compared to stock market investing. You might think that you will usually be paying for the value of the gold, but that’s not always the case. The sellers that you buy from will usually add on a premium that will cause the price of the coins to rise when it comes to completing the sale. In order for the seller to make a profit, these premiums can often be pretty large, meaning that you will be left to pay above value. It’s important to weigh up whether or not you’re getting a good deal each time you buy.

Capital Gains Tax

Another hurdle that you will need to overcome is capital gains tax. The capital gains tax on precious metals can be almost twice as much as the tax on stock market investment profits. This is something that definitely needs to be taken into consideration before deciding which way to invest. It might not be worth it if the extra tax costs wipe out any extra money that you make. It certainly makes things harder for you as an investor in coins. You will have to crunch the numbers and work out the costs and benefits of this kind of investment before going any further.

Storage Can be Challenging

When you are dealing with metals, storage is another thing that you will have to give some thought to. Obviously, when you invest in stocks and shares, this is not a problem because there is nothing physical. But that is all different with coins because they are physical objects that need to be kept somewhere. If you are storing a large number of expensive coins in a secured storage facility, this can cost quite a lot of money. You don’t want to be paying huge sums of money for storage because it might significantly eat into the profits that you earn.

Now that you understand what collecting coins as an investment involves, you can decide whether it’s the right move for you.

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.