Is There A Flip Side To The (Rare) Coin?
In times of crisis like the one we are experiencing now investors need two things:
1.) A powerful tranquilizer to keep you calm and prevent you from panic driven actions
2.) Assets that can weather any storm
While tranquilizers and sedatives are readily available to most of us, an asset that gets you through the roughest of all times is a little trickier to get hold of. The gold price develops not always as foreseen and shows unexpected volatility. Real estate is immobile and cannot be relocated in case of emergencies. Art, cars and wines require special and costly storage facilities, and similar to real estate, they are not easily transported. Equity and bonds experience distinct price losses during times of crisis like we are experiencing them now.
Out of personal interest, but also to share insights with my network that you as a reader belong to, I regularly speak to families around the world to learn about their coping mechanisms and strategies that help them get through these tough times.
This week I spoke to an American family office who acquirers, sells and manages one of the world’s most unique asset classes – United States rare coins. The family’s wealth derives entirely from the trading of these coins and a 45 years track record makes them the uncontested champions and experts in this market.
Today I would like to share with you what I have learned during our conversations and introduce you to the fascinating world of rare coins.
About The Coins
Rare coins are American historical artifacts that go back to the founding period of the United States and the establishment of the new country’s sovereignty. Economic strength and independence go hand in hand with mintage of coins as legal tender. Visually appealing and culturally significant coinage helped achieve this objective.
The rare coins that have survived until today in high quality were often held or owned by a very exclusive circle of individuals, that is mostly comprised of
- past U.S. Presidents
- members of Congress
- foreign dignitaries
- or some of the wealthiest people in the world
These people passed down these prized possessions for generations and kept them in an incredible condition. Similar to other artifacts the rarity and value of a coin is determined by how many pieces have survived (supply), then the condition (grade), popularity, unique historical significance, and aesthetic beauty.
The Rare Coin Market
Despite the fact that we are talking about a niche asset class, the rare coin market size is estimated at more than USD 4 billion in 2018 alone. In the most elite segment of this market, individual rare coins are not traded frequently and some are only available for public sale once in a lifetime, if ever, which creates excitement and brings significant opportunities to profit.
The exponential growth of the financial market with its ever so similar and overly complex products creates a demand for safe and simple investment solutions, aiming particularly at wealth preservation over the long run. Only few families have been introduced to this market as an investment, but the trend is picking up and more private investors have realized the immense advantage of rare coins.
Some of the reasons for this increasing trend are:
- changing wealth demographics
- search for alternative investment opportunities
- accelerating wealth transfer through inheritance
The Rare Coin Investor
The typical rare coin investor seeks to allocate a small percentage of his or her wealth in the rare coin market. As initial investments start from at least USD 250,000 and reach easily USD 5,000,000 investors usually have a minimum net worth of USD 25,000,000. U.S. rare coins are irreplaceable historical artifacts, which is why they are so popular among the affluent.
The high-end coin market is stable because wealthy collectors are financially secure and are rarely in a position where they are forced to liquidate their prized possessions during economic uncertainty. Investors with holding power are in a strong position to preserve wealth in all market cycles as they own intrinsic value not correlated to conventional markets or credit risks.
Unlike securities, real estate, and most other transactions, rare coin transactions are private and dealers are not required to share transactional information (e.g. No K-1, 1099, Etc.) with the government.
Further, rare coins are exempt from FATCA/CRS and can be transferred duty free in and out of the U.S.
Third party companies provide a financial guarantee on the authenticity and condition of U.S. rare coins, which are sonically sealed in small tamper proof cases. The owners of these assets can easily transport tens of millions of dollars in value to the jurisdiction of choice and store them with zero maintenance (unlike fine art, wine, classic cars, etc.).
The Flipside Of The (Rare) Coin
Few investment opportunities have so few downsides. Rare coin investments are for the long run and serve as non-correlated options to preserve wealth against inflation, while being accessible at all times. But a small market means opportunities are not widely spread. Clients with holding power, where their rare coin portfolio is very small relative to their overall investment portfolio, should not be in a position where they need to sell a coin for less than their purchase price; as such, there should be little if any volatility in your rare coin portfolio as you are simply waiting for buyers searching for your coins.
If you are an investor and would like to learn more about rare coin investments first hand, please contact me at david@grammigadvisory and I will be happy to make an introduction to the family on your behalf.