Saturday, October 15, 2011

Making money in collecting, trading, selling early U.S. coins

I have collected coins since I was a kid and am now middle-aged, and I have done this mainly as a hobby with an eye for attractive coins and a passion for history, and with a secondary thought only toward investment potential.  However, I can tell you that hands-down, over the past 5 years, my coin collection has provided more stable appreciation and better performance than many of the mutual funds in my company's 403b selection.  Had I been able to invest 5 or 10 % of my allocation in early U.S. coins instead of the various mutual funds, I think my retirement funds would have been better off today.   

What are the keys to making money in U.S. coins?  I'd like to summarize a few of these key concepts, and will comment more about this later.  My comments do not speak for or to the gold coin market, as I do not collect them and do not have expertise in them.  These are my opinions based on my own experience with early U.S., non-gold coins:

First, be relatively focused in your collecting.  When I was a kid I collected everything and anything, from any country.  This is just not feasible when it comes time to liquidate part or all of your collection for a profit.  Choose a niche that excites you - I have decided to collect primarily Capped Bust half dollars, mainly by year but to some extent by Red Book variety, and then to a lesser extent a few type coins such as large cents, a Draped Bust half dollar, and I hope to get a Flowing Hair half dollar.  All of my coins are pre-1840, but this is just a personal preference (but I can tell you there is good demand for early U.S. "Federal period" coinage).  Buy things that you like and find intriguing and eye-appealing.

Second, buy quality coins.  You get what you pay for, generally.  Of course my wallet doesn't alway permit the finest, but in the lower grades that I can afford, I try to look for coins that are as original looking as possible (i.e., not cleaned, polished, scratched or otherwise tampered with) with nice patina, good surfaces free of scratches and corrosion... as I mentioned in the last sentence of the preceding paragraph, buy coins you find eye-appealing.  I do have some coins that have been cleaned (hard to find Bust halves that have not been cleaned or dipped at some point in their lives), but I try to limit this to very special coins, rare coins, and to those that have only been cleaned lightly.   A lot, but not all, of the coins offered raw on E-bay are suboptimal and a lot of the sellers are not forthcoming about problems such as cleaning, pitting, scratches, graffiti, or even holes in the coins.   Avoid sellers or dealers who do cannot display a photo of a coin as good as or better than the ones I have posted here on my site (I am a very amateur photographer)... if they can't at least try to make an effort to clearly display their coin, then be wary.  If you are cautious and very selective, you do not necessarily have to limit yourself to PCGS or NGC-slabbed coins, which usually are quite a bit pricier due to the cost of the professional grading service.   

Third, keep in mind that recent issues and particularly modern (post-1982) commemoratives by the U.S. mint are made in mass quantities, with few exceptions.  I got lucky with my $39 purchase of a 1999-S silver U.S. State Quarter proof set of 5 quarters, which I was able to sell for about $360 a few years later.  It seems that their value peaked somewhere around $400 and now is at a much lower level.  That particular set was one of the few exceptions.   Much rarer and more desirable coins are available in the early U.S. coins series.   I've gotten lightly burned selling off many of the U.S. Mint  proof, mint, and modern commemoratives I collected as a kid... luckily I did not put too much money into any of them.  That being said, there's nothing wrong with getting kids started in collecting with the State Quarter program, which I am doing with my daughter.  Coins are a wonderful and educational hobby to teach about history, geography, culture, and numerous other topics.

Finally, have fun and don't worry too much about your budget.  There are plenty of series, even quite historical and "old" U.S. coins, in which really nice examples can be had for less than $10.  Same goes with foreign coins, ancient coins, etc.   Assembling a nice collection can be done at whatever pace you desire.

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