You hear the same advice time and time again: Diversify your portfolio. Today I'm going to make the case for something new in the world of diversification, taking the concept to the next level. I propose that you should not only diversify you overall portfolio of assets, but look at your gold bullion coin portfolio as its own world. Within this world of gold bullion coins, I suggest diversifying like crazy! Make sure you have all the popular sizes (tenth ounce, quarter ounce, half ounce, one ounce) and also popular styles (American Eagle, American Buffalo, Canadian Maple Leaf, South African Krugerrand, with a few more thrown in too).
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My Case For Gold Coin Diversification
There are four main reasons I recommend diversifying within your gold coin portfolio. First, let's look at the fun aspect. At the end of the day, one of the big reasons I invest in gold is because of the fun factor. The coins are just plain neat! Why would I want to own all of the same thing, when I can get a sample of all different types and sizes of coins? As a reward to myself as an investor and collector, I try to not always buy the same thing.
Second, let's look at the doomsday scenario. Many investors, myself included, hold gold because it is a great store of value. If our economy ever goes under (I sure hope it doesn't), gold and silver coins will be used to pay for goods and services. I sure want to hold different denominations and types of coins because not all goods and services cost the same amount. The smaller 1/10 ounce gold coins are the best for this scenario because they can be used to pay for smaller purchases. Silver coins are also really important under this scenario.
Third, let's look at the numismatics collector scenario. One of my dreams is buying bullion coins for their raw metal value but then having some of them actually turn out to have numismatic value as well. This means instant gains in my investment over my purchase price. You expose yourself to a greater chance of numismatic value if you diversify your bullion collection. Maybe a few of your bullion coins will end up having some true rare coin appeal.
Last, let's look at another glass half empty scenario: What if a certain type of coin becomes totally worthless? Maybe the United States gets into a war with another country and the government decides to repurchase all private collector coins from that country for pennies on the dollar? (This actually isn't so far fetched. Check out this article explaining the gold confiscation of 1933.) What if we find out that certain coins are not made properly and only contain 1/2 ounce of gold rather than the advertised 1 ounce of gold? You protect yourself against all of these far out scenarios and others too by employing good diversification.
Ok I Agree. Now Which Gold Coins Should I Buy?
This is the fun part. There are two ways to diversify: size and style. First, let's look at size. The most popular sizes of gold coins are 1/10 ounce, 1/4 ounce, 1/2 ounce, and 1 ounce. Make sure you buy all of these varieties. There are also some newer coins in 1/20 ounce variety!
In terms of style, things get a little more complicated. Here you want to weigh very heavily towards the coins that are most readily accepted at coin dealerships and markets around the word. Following are some of the most popular styles: American Eagle, American Buffalo, Canadian Maple Leaf, South African Krugerrand, Chinese Gold Panda, and Vienna Philharmonic. Some of the above listed coins are 22 karat gold (Eagles and Krugerrands) and others are 24 karat gold (Buffalos, Maple Leafs, Pandas, and Philharmonics). The great thing about buying a good variety of coins is you will diversify between 22 karat and 24 karat as well. Before buying, make sure you do your research and don't let the coin dealer talk you into something you're not interested in owning.
There is a third way to diversify: by date. When you start getting into date and buying older coins, you get into the realm of numismatics. Once you have a solid bullion collection of coins, old and rare coins can definitely help your diversification cause. One great way to do this is to throw a few $20 gold Saint Gaudens double eagles in your portfolio, the most beautiful gold coin of all time. However, the topic of numismatics is a little beyond the scope of this article which is all about diversifying your bullion coin collection.
Don't Forget To Protect Your Coins
As a closing reminder, make sure to store your coins in a very safe place. You've worked so hard to own your diversified collection of gold coins. The last thing you want to happen is lose your collection due to fire, theft, or some other unforeseen issue. Make sure to store your coins in a very safe place so you can sleep sound at night knowing your assets are protected. I highly recommend a safe deposit box at your local bank. Also, there are third party safe houses that specialize in storing gold and precious metals. Taking the diversification theme to the next level, why not spread your collection (once it gets big enough to warrant doing so) among multiple safe deposit boxes and locations. You'll sleep better and night knowing your collection is safe and sound through a diversified storage strategy!
Like this article and want to learn more reasons you should diversify? I just uploaded a new article about 22 Karat Vs. 24 Karat Gold Coins. In this article you'll learn all about the differences between these coins and why you should diversify and own both!
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