Thursday, August 15, 2013

More tentative steps into the world of coin collecting (for investment)

A few months ago I wrote about how I overcame my uncertainties and purchased my first collectible coins for investment purposes.  For full details about my rationale and the rules I set myself see my post here.  I just bought my second set of coins and have outlined the details below.

A quick re-cap of the rules and rationale

I am not going to make this a core part of my portfolio but it is an investment class that I hope to build up over the very long term.  To this end I am only going to be contributing $50 a month to the coin collection.  There are a few reasons why I am not going to be spending hundreds of dollars a month on this investment class:

  1. I know very little about what drives the value of collectible coins
    • I truly believe that people should only invest in what they understand
    • I understand at a basic level what causes the prices to move with collectible coins however I do not have the same level of knowledge that I do in the property or housing markets
  2. I thought about storage and insurance
    • Coins are a physical product and like all physical products they need to be stored somewhere
    • I am comfortable having a few hundred to a few thousand dollars of coins in my house...but more than that would start to make me nervous
    • Also the space considerations need to be taken into account
  3. They don't generate any income
    • Physical commodities do not generate any income at all and I did not want to lock up too much of my wealth in an asset which was not yielding me anything
Based on my lack of specific knowledge outlined above, I have decided to play it safe.  Here are the rules I set for myself:
  • Australian coins only
  • That are in mint condition
  • Which are circulating or special editions of circulating coins (i.e. not medallion type coins)
So why has it taken me so long to purchase my second set of coins?

I first posted about this in May 2013 and you may wonder why it has taken me until August to purchase my next set of coins - after all it should be fairly easy especially with the rules outlined above.

However, I had forgotten to take into account transaction costs.  Transaction costs can really burn you in investments, especially if you don't control them.  The transaction cost I had forgotten was shipping.  It costs $12 to ship from the Canberra mint and if I paid this every month I would need a significant return on the coins just to break even.  

I decided that I was happy to pay 10% in transaction costs which means that I can buy the coins every three months.  Deciding how much you are willing to pay in transaction costs is pretty essential, especially if you are going to do this regularly instead of a once off.

So what did I buy?

With other investments I probably wouldn't outline what I bought exactly but coins are pretty standardised products so I have no qualms about sharing:

  • 1 roll of 2009 $1 Age Pension Rolled Coins
  • 1 roll of 2010 20c Tax Centenary Rolled Coins
  • 1 set of 2010 4 coin ADPH Privy Mark Set (100 years of Australian coinage)
  • 1 set of 2011 4 coin ADPH Privy Mark Set (Ram's Head)
  • 2012 Mint mark and Privy Set (Wheat Sheaf Dollar)
  • 2013 2 Coin Proof Year Set (Australian Mining)
I have not yet decided whether it is a good idea just to buy one of each available item or to buy several.  I suspect that as I build up my collection I will be forced to buy several so for now, while I catch up, I will just be buying single sets or rolls.

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