Here's a Quick List of Our Do's and Don'ts When Buying Coins • Do look for companies that have been around for a while. Austin Coins has served coin collectors since 1989. • Finally, I would absolutely AVOID buying from individuals or part-time coin dealers or auction sites. In our opinion, there are two basic keys to successful coin collecting in the long run. First, you must buy a coin that's fairly represented and priced. You need to see the coin and have a reasonable return priviledge if you don't like it. Secondly, you need someone to sell your coins to later. Little guys probably won't around when you are ready to sell years even decades from now. On the other hand, bigger, established coin dealers tend to offer higher prices (sometimes by 15% to 25% higher) for coins they buy back from their customers. From our experience, too often people get stuck with problem coins or were defauded years ago. Then it's way too late! We also find that people who are in a hurry to sell sometimes dump off perfectly good coins to pawn shops or local guys who typically underpay for coins they did not sell. Take your time in selling your coins just as you should in buying. We further recommend you read the following article published by the Better Business Bureau. Note: When based in any part upon state law, BBB Aware Reports are based upon California law. Consumers in states other than California should refer to the laws of their state.
INVESTING IN RARE COINS Buying rare coins can be a good investment and a satisfying hobby. It is also risky, especially for a newcomer, and it carries no guarantee of a profit. Buyers can lose most of their investment if they become a victim of fraudulent sales practices. Many coins are traded in a system that involves a national network of publications and firms posting "bid" and "ask" prices for specific coins. The "bid" price is a guide to the prices dealers are willing to pay for an average coin of that grade, while the "ask" price is a guide to the prices dealers are asking for an average coin of that grade. Typically there is a minimum 20 percent "spread," or dealer markup, between "bid" and "ask." It is important to keep in mind that these are dealer-to-dealer prices and that there is no assurance that an individual investor will be able to find anyone willing to pay the published prices. What are the Risks of Investing in Rare Coins? Liquidity: The marketplace for coins is sometimes troubled by liquidity problems of either the coin or the market. Simply put, a coin is considered to be illiquid if the investor has difficulty finding a buyer, making it impossible to convert it into cash. If the investment market is so "thin" that there are not enough participants to generate either movement in the price of the instrument or ready buyers and sellers, the market is said to be illiquid. In the absence of consumer protection standards, coin dealers are not held to honor the bid/ask prices listed in coin publications, and they are not required to "make a market" in a coin. As a result, a dealer may refuse to purchase a coin from an investor at a quoted price--a high-pressure practice frequently resorted to to get investors to part with their coins for a below-market price. Coins may not be an appropriate investment choice for someone who needs the assurance of being able to secure a fair price for their investment in a short period of time. Suitability: Coins may also be an unsuitable investment from the standpoint that they do not pay interest or dividends, must be held onto as an investment for several years, and cannot be depended upon to appreciate rapidly. Also, the typical 20 percent dealer markup (which can run considerably higher if you're dealing with a questionable dealer) means that your coin will have to appreciate more than 20 percent before you can see a real increase. For these reasons, some firms advise against placing more than 5 to 10 percent of your total portfolio in rare coins. Deferred payment programs: Deferred payment programs deserve a word of special caution. Under a "deferred payment program" or a "leverage contract," offered by some brokers, you may initially pay only a fraction of the price of the coins you are buying. The balance is financed. Leveraged coin deals, like buying stocks, options, or futures on margin, increase the risk of loss should the coins drop in value. Under this type of payment arrangement, you can lose substantially more than the amount of your initial investment. Leveraged contracts involve an extremely high degree of risk and are normally unsuitable for the average investor. However, if you want to buy under a deferred payment program, you should determine all costs, including markup, commission, loan origination fees, storage costs, insurance, and loan interest. From this information, you can determine how long it will take you to break even. You will also have to make certain that your coins actually arrive at the bank. Many banks will not check out the broker. How to Identify Fraudulent Sellers Many of the same sales techniques are used by both fraudulent sellers and legitimate dealers. Some advertise in newspapers and magazines and sometimes meet prospective clients through financial planners and insurance agents. Others use telemarketing. For example, you may be approached through an unsolicited phone call, or you may be called after you have responded by mail to a print advertisement. Because telemarketing fraud has grown rapidly over the last several years, be particularly careful about committing yourself to any purchase from an unsolicited caller. Listed below are some sales techniques commonly used by dishonest dealers: False grading claims. Because the value of a rare coin is usually determined by its grade and rarity, correct grading is very important. The grade of a rare coin is a shorthand method of describing its condition. Because grading includes such factors as "overall appearance" and "eye appeal," it necessarily involves some degree of subjectivity. As a result, a grade assigned to a particular coin may vary even among legitimate dealers, especially in the higher, investment-quality grades, where distinctions in condition are more subtle. Because the fine distinctions between grades often mean large differences in the value or price of a coin, this subjectivity constitutes an inherent risk in coin investing. But intentional inaccurate grading is the most common form of rare coin fraud, and a fraudulent seller may inflate the grades of the coins they sell to many times the coin's actual value. False certification claims. Many consumers and financial planners use certification services to verify grade before they buy. These services examine coins, "certify" them as to grade, and usually issue some form of grading certificate. However, consumers can lose money if a certification provided by a dishonest coin dealer is part of a fraudulent sales scheme. Sometimes, even certificates from legitimate services can be misleading. For example, some certification services use looser standards than those generally accepted by dealers in the rare coin market. Thus the coins they certify may be worth less than others of the same grade. There are special pricing publications for coins certified by major services. Before you buy any certified coin, check its current value in one of these. Also, because grading standards have become more stringent over the years, a coin graded and certified in prior years may be given a lower grade today. Some fraudulent sellers may use an old certificate to mislead you into believing that a coin's grade is accurate, so be sure to check the date of any certificate you are offered and investigate the certification service before you commit to a purchase. False claims about current value. Some dishonest sellers grade their coins accurately but mislead consumers about their value. In other words, they charge significantly more than the coin's actual value, even though it is accurately graded. For example, they may charge $5,000 for an accurately graded $10 Indian gold piece that has a current retail value of only $1,750. False appreciation claims. Dishonest dealers may also mislead buyers by quoting rare coin appreciation rates from an index compiled each year by Salomon Brothers, a New York investment bank. These quotes show appreciation of 12 to 25 percent a year. However, this index is based upon a list of 20 very rare coins, while coins sold by dishonest dealers are more common and not likely to appreciate at the same rate, if at all. Still, almost all dealers, legitimate and dishonest alike, use the Salomon quotes. Therefore, it is particularly important to choose your dealer carefully. And remember, there is no guarantee that any coin will appreciate in value. False claims about bullion coins. Technically, bullion coins are not "rare" coins because their values are determined principally by their gold or silver bullion content, rather than by rarity or condition. The best known bullion coins are the U.S. American Eagles, the Canadian Maple Leaf, and the South African Krugerrands. These coins are bought and sold worldwide through banks, brokerage firms, coin dealers, and precious metals dealers, who offer competing prices for the coins. Bullion coin prices change daily, depending on the varying prices for gold and silver in the world markets. Fraudulent sellers of bullion coins often overprice their coins or mislead consumers about their bullion content. Therefore, before purchasing, call several reputable dealers or brokerage firms to compare prices. Be sure to ask about any additional transaction or delivery costs. Imitation coins. Another tactic of fraudulent sellers is to mislead consumers into buying "coins" that are not really coins at all, but imitation medals created by fraudulent "mints." Some private mints issue bullion pieces with the same design as coins from the U.S. Mint, but in different sizes. To make sure you know what you are buying, your best protection is to study the bullion market before you buy and to choose your dealer carefully.
Steps you can Take to Protect Yourself If you receive a solicitation to invest in coins, take these steps: • Be wary of high-pressure telephone and direct mail sales pitches. Deal with people you know, or have investigated, and trust. Be especially wary of promises of quick or sky-high profits. • Be suspicious of claims or hints of official government ties or protections. No commercial coin dealer has ties to the U.S. Mint. Don't be taken in by firm names that sound as though they are official government agencies. • Use common sense when evaluating any investment claim. Don't rush into buying. Get information in advance and read it before you invest. Ask the dealer to state how much you could get for the coin if you decided to sell it immediately. Get, in writing, a specific explanation of the dealer's markup. • Comparison shop. You should be concerned not only with grades, but also with prices. Visit several dealers before buying. Check prices in leading coin publications to make sure you are not being overcharged. Several publications list representative wholesale values for fine coins of various issues and grades. These values are generally higher than the prices consumers can expect to receive if they were to immediately sell their coins, and lower than the retail prices consumers may be charged to buy the coins. Consult such publications prior to trusting dealers' representations about the current value of coins. If a dealer's advertised price is much lower than the price listed in these publications, the dealer may be misrepresenting the quality or grade of the coin. • Make sure you know your dealer's reputation and reliability before you send money or authorize a credit card transaction. Find out how long the company has been in business. Don't rely only on what a dealer's representative tells you, though. Consult other collectors and check with numismatic organizations and professional organizations the dealer claims to be a member of. Get a reliability report from the Better Business Bureau, and check with the California Department of Corporations. Keep in mind, though, that having no information or record of prior wrongdoing is not a guarantee of the dealer's honesty. • Beware of telemarketers who use a bank's name to lend credibility to their pitches for coins. • Don't be taken in by promises that the dealer will buy back your coins. • Don't rely on a claim that grading is guaranteed. Get a second opinion about grade and value from another source as soon as you receive your coins. This means that before you buy you should find out what remedies you will have if the second opinion differs from the first. Does the company offer, say, a 30-day return period if you are not satisfied with your purchase? Can you get a full refund, or will you be given credit to be used to purchase other coins? If a dealer promises to buy back the coins at the same grade at which they were sold, does that mean at the price you paid or at some discounted amount? • Be cautious about grading certificates, especially those furnished by coin dealers. Have the grades of any coins you buy checked by an independent source. If you use a grading certificate as a second opinion, be sure you understand what the certificate represents. Grading is not an exact science, and a certificate represents only the opinion of the certification service. Find out if the certification service is, indeed, independent of the dealer and what grading standards are used. Remember that, because standards vary, coins certified by different services will be worth more or less than other coins of the same grade. Weekly periodicals list prices for coins that have been certified by various services. Check the prices for those coins you are considering. • Exercise caution in using a financial planner for coin investments. Most are not subject to regulation or any training requirement. Should you rely on the advice of a financial planner and later discover that your coins are overgraded or overpriced, you have little possibility of recovering your funds. You may also have to pay the financial planner a commission. • Take possession of any coins you purchase to ensure they exist and to be sure that they are properly stored. • As with any consumer purchase, be wary about giving your credit card number to strangers, especially over the telephone.
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