Collectable coins may offer benefits to a diversified portfolio as an alternative asset, according to a study, which reported their annualized nominal returns as 9.7% and their annualized real returns as 5.5% between 1967 and 2015. Diversification strategies that included collectable coins showed significant improvements in Sharpe ratios (risk-free return) compared to those that did not.

The return of an alternative asset, such as art, wine, stamps, instruments or baseball cards, is nuanced. Coins are no different. The study’s authors focused on coins and coin sets graded as mint state (MS) or brilliant uncirculated (BU) on the Sheldon scale by third-party authenticators. The coins were about 30 years old on average.

Price was found to increase with age, and coins minted for collectors or minted as part of a collectable set were associated with higher prices. Coins minted in San Francisco carried the biggest premium, followed by coins minted in Denver and Pennsylvania.

By denomination, half-dollars held the highest premium, followed by quarters, dimes, dollars, nickels and proof sets, relative to cents. Collector-grade coins sold for many times their intrinsic metal value. Relative to coins priced under $1, coins priced between $1 and $5 earned the highest returns, followed by coins priced greater than $1,000.

Compared to other assets, returns on coins were higher than returns on art, wine, bonds and all Treasury securities but lower than returns on stamps, stocks, gold and silver. In terms of volatility, both nominal and real coin returns had higher volatility than stamps, stocks, bonds and all the Treasury securities but had lower volatility than wine, gold and silver.

Price momentum in coins was observed over long windows of two years to five years, in comparison to equity markets where momentum is generally observed for three months to 12 months. This difference was attributed to coin markets being less sophisticated than equity markets, which slows the diffusion of information and increases transaction costs. These attributes also factor into the stickiness of coin prices, meaning prices tend to stay the same despite lower demand.

According to the study, the optimal weight of collectable coins in a portfolio of stocks and bonds—represented by returns on the S&P 500 index with dividends and the Dow Jones Corporate Bond Return index—was 24.9%; it was slightly higher for a portfolio diversified further with precious metals. The study’s authors noted that the figure is large but it indicates the room investors have to increase their diversification benefits by increasing their investment in coin holdings.

Source: “U.S. Coins Market: Historical Performance and Anomalies,” by David A. Maslar, Khaled Obaid, and Kuntara Pukthuanthong; SSRN, October 2019.

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