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Coin collection is of the oldest hobbies around. If done right, it can also be one of the smartest investments you can make. While buying gold and silver to hedge against economic meltdown is currently in vogue, precious metal coins are an essential part of a well-diversified portfolio. If you’re looking to expand your coin collection from the state quarters collection to U.S. Silver Eagles, there are a few things you’ll want to know first.

When investing in coins, there are two main types you’ll want to focus on: bullion coins and rare coins. If you are collecting coins primarily as an investment, bullion coins will give you the most bang for your buck. The risks for coin investment can be higher than with traditional investments, so make sure to do your research before you get started. Coins should be a relatively modest portion of your portfolio, even if you are preparing for a currency meltdown.

Bullion Coins

Bullion coins are simply those composed of precious metals whose only value is that metal. Most often cast in silver or gold, there are a number of governments and private companies which produce bullion coins each year. For investment purposes, the safest and most popular coins include the South African Krugerrand and American Silver and Gold Eagles. Nationally minted coins have their weight, content and purity ensured by state governments, for which you’ll pay a small, but worthwhile, premium over privately minted rounds (non-legal tender). With commodity prices soaring as they have in recent years, bullion coins provide a stable investment opportunity.

Rare Coins

Investing in rare coins is a far more uncertain endeavor than bullion coins. Rare coins offer a potential increase in numismatic value, or value added to the monetary value of the coin. While certain coins do have high numismatic value, it requires a lot of research, timing and legwork to make sure you get your return on investment. There are many factors to consider buying rare or obsolete coins such as a Silver Kennedy Half-Dollar or a Walking Liberty, including grade and value, so make sure to do your homework.

Coins do not have to be rare to see increases in numismatic value. Recently produced bullion coins like Silver Eagles or the Silver Canadian Maple Leaf will typically trade for at least a few dollars over spot value of silver.

How to Invest
  • Be aware of what you’re buying. Counterfeit coins are not uncommon, and many dealers may overgrade their coins. Purchase certified coins or bullion coins to minimize this risk. The Professional Coin Grading Service and the Professional Numismatists Guild provide quality certification for many coins.
  • You can purchase bullion coins directly from the U.S. Mint or through private retailers. Historically, purchasing directly through the Mint has not been a quality investment.
  • If you are a small investor, investing in silver coins (which trade many times below the cost of gold) can provide an easy approach to the market. Find coins you like and that have a proven value over time.
  • Always check the value and grade of the coin you’re purchasing and the current spot value of its metal. Coin collecting resources like the official Red Book provide real-time prices, histories and auction guides for more than 6,000 coins.
How Not to Invest
  • There are no bargains in the world of coin investing. While they may provide easy access to coin collecting, coins from TV specials and from non-governmental mints have little-or-no value and even less investment potential.
  • Do not sit on your rare coins. Always be prepared to sell a coin occasionally. Numismatic value only appreciates so much, so be ready to move your coins when the time is right.
  •  Don’t buy oddity, buy quality. High-quality coins will appreciate faster than those with oddities, so invest in the best.
  •  Don’t keep them at home. You won’t need your coins to be liquid, and keeping your coins and any certificates in a safe deposit box will ensure the safety of your investment.