Abstract painting

Smart Ways to Invest in Art, Coins and Other Rarities

Plenty of investors get bored with the standard lineup of traditional and alternative investments. . Even precious metals can be ho-hum for people who want a bit of intrigue in their portfolios. Excitement need not be high risk. In fact, selecting the right mix of collectibles like art, coins, stamps and antiques can be a fun way to earn income on a portfolio.

Whenever the world’s major investors have a good year, they tend to put some of their extra cash into collectibles like rare coins and works of art. For that reason alone, the collectibles market tends to do well when the overall, traditional market does well. The other side of the coin, no pun intended, is that rarities are also a good contrarian investment since they tend to hold their value and act as a safe haven when stocks and bonds tank.

Rare Coins

Rare coins, especially U.S. gold coins dated before 1933, have become the go-to investment over the past two decades for investors who want to diversify their portfolios with a collectible instrument. (The other primary collectible investment category is art, which we’ll look at next).

Pre-1933 gold coins have almost gone mainstream because they are so popular among traditional investors, many of whom were introduced to the coin market as bullion buyers. Note that “coins” and “bullion” are two different things. Bullion is metal, typically gold or silver, sold in Troy ounce units. Coins are denominated by an official national government and are considered legal tender for trade. Visit any coin shop or trade show in the U.S. and you’ll see plenty of coins and bullion, often side-by-side on display tables.

If you are thinking about putting some of your investment dollars into rare coins, here are some points to consider:

  • As far as the IRS is concerned, you’ll be taxed as a “collector” instead of an “investor,” unless you can prove you made a profit in three of the last five years. You also have to document that you consulted experts about buying and selling and allowed your investment to be “at risk.” If you can meet these criteria, you will be able to deduct many of your expenses against any gains.
  • If you stick with pre-1933 gold coins, there is no requirement for the dealer to file a 1099 with the IRS.
  • In most states, you will pay no sales tax on coin purchases as long as you buy more than $1,000 of coins at a time.
  • When most other investments decline in value, gold coins and bullion tend to do quite well, though the specific coins you own might do even better or worse than the overall coin index.
  • There is typically no official record that an investor owns gold coins. And you needn’t pay capital gains taxes until, and if, you sell the items.
  • The downside is that rare coins must be secured, which is why most people rent a safe deposit box for storage. Rare coins can also depreciate in value solely from wear and tear if they are not stored properly. Most registered coin dealers can show you how to keep rare gold in good shape.
  • Keep in mind that rare coins are not an investment in a company’s growth or prosperity, so there will be no dividends or interest payments, ever. The goal is to gain value from appreciation over time.
  • Never buy from individuals unless you have the coins appraised by a licensed dealer or appraiser.
  • Don’t handle the merchandise! Gold is a finicky metal and does not respond well to human touch.
  • A smart rule of thumb is to have something between 5 and 15 percent of your portfolio in precious metals, gold coins, artworks, or other rarities, as a group. So, if 10 percent of your financial commitment is already in works of art, try to keep the rare coin investing to less than 5 percent of your portfolio.

Works of art

The second most popular item in the rarities category is art. Unlike investing in gold coins or bullion, one needs to do a good deal of studying before plunking down money in exchange for a painting or a sculpture.

Consider the returns on the top collectibles from 2002 to 20012. Fine art earned its owners about 200 percent during that 10-year period, rare coins, 248 percent, stamps, 216 percent, fine wine, 166 percent, jewelry, 140 percent, and classic cars, (the winner!) 395 percent. These are decade-long figures, meaning the fine art category, for example, returned an average of about 7 percent per year.

Sit down and study up on the heady world of art as an investment. Note the following facts, as a beginning point of your research:

  • Because art is a tangible commodity, it typically serves as a reliable hedge against the roller-coaster nature of the stock and bond markets.
  • There are unique costs for art collectors, notably maintenance. Expensive paintings often must be kept in controlled-temperature environments that are free from soot and excessive moisture.
  • Certain artists’ works tend to be “in” one year and “out” the next, so diversification within the art category is almost always a good idea.
  • Take a long view of the art market and understand that paintings and sculptures are not liquid investments like gold and silver.
  • Be ready to consult experts for each purchase. Unless you know that art market well, always pay an expert for advice about a particular piece. Questions to ask should include: How have this artists’ other works performed, investment-wise? What will I need to do to maintain the piece? Does this item fit will with the other artworks I already own?
  • Spend time at the website of a nonprofit art-related website for new investors, called com, where any new investor in art can get a good education about the market and how to enter it carefully.
  • Watch out for fraud. There is more deception in the art world than in any other area of collectibles investing. Always get documentation and have an appraiser view the pieces you want to buy. And it should go without saying, try to buy from reputable auction houses and dealers.
  • Note that you’ll have a few unique expenses as an art owner, not the least of which will be storage, appraisals, gallery/auction fees, insurance and maintenance.
  • Art investors absolutely must educate themselves about the market, read industry publications, study various journals, and hire an art advisor for major purchases. These professionals charge a small fee but can save you many thousands of dollars in a single transaction. So, it is money well spent as long as the advisor is working only for you and not the gallery or dealership.

Think about it

Investing in precious metals, rare coins, art or other collectibles is an exciting way to spice up a portfolio, but is a step that requires careful consideration, planning and guidance. Don’t jump into this category without doing a good deal of research and talking to an expert or two, preferably someone you trust. It always helps to speak to friends as well, especially those who have a bit of experience with collectibles investing. Gather as much information as possible and then decide if coins, bullion, art or classic cars are something you want to add to your portfolio.