If you were to say to someone that you’ll be investing in coins, what you’d be referring to may not be so obvious any more. In years gone by, a popular choice was the Krugerrand and then gold medallions. Lately, cryptocurrencies such as Bitcoin have presented themselves as viable investment options.
Here are some different investment choices and their potential returns:
This year is the 50th anniversary of the Krugerrand. The gold coin has a chequered history as it was used during apartheid to smuggle wealth out of the country.
However, it has been a relatively stable investment choice. Had you bought one in 1967, it would’ve cost you R25. Today, its worth more than R17 300, which means it’s enjoyed a compound growth rate of 14% a year, although, unlike a share investment, it does not pay an income and comes with holding costs such as insurance or safe custody.
Arno Egan, director of Mr Kruger, a bullion specialist in Pretoria, says: “I think gold has its place in people’s portfolio. But, like anything, you shouldn’t put all your eggs in one basket. Roughly, the value [of the Krugerrand] doubles every five years.”.
The advantage of investing in the Krugerrand is that it’s a “proudly South African product” that is well established locally and abroad. Investing in gold generally provides a safe haven in times of global financial turmoil.
Chantal Marx, head of research at FNB Securities, says: “Gold is a precious metal and its value is not influenced by the same factors that affect other asset classes. Gold could be held along with other asset classes such as equities, bonds, property and cash as a means of diversifying.”
However, there are also disadvantages.
“The Krugerrand doesn’t pay you a dividend. If you have property, for instance, it would also escalate in value, but it would give you an income and, if you have shares, you would have a dividend,” Marx says.
You can buy Krugerrands though numismatic dealers. Check to see if your vendor is approved by the SA Association of Numismatic Dealers and the SA Mint. Alternatively, banks also sell them. FNB, for example, lets you buy and sell Krugerrands through its share investing platform.
Gold medallions and collectable coins
When investing in gold medallions and coins, you have to be careful and do your research because their value is based on demand and rarity, rather than the gold they contain.
“It’s a collector’s product that you could buy at a 200% to 300% premium, depending on where you buy it,” says Egan.
So, if the medallion is not sought-after, you may have some difficulty getting rid of it down the line, if that’s what you want to do. Companies such as the Scoin Shop don’t guarantee the repurchase of gold medallions from customers. However, if there is a demand for a particular coin or medallion, they will buy it back.
“You have to know what you are doing. There is scope for this kind of product in the market, but it is more cumbersome because you have to know what it is that you buy. Some people have been burnt,” warns Egan.
If someone promises you they will buy your coins back, make sure you have this in writing.
While Krugerrands and gold medallions are tangible, cryptocurrencies are virtual. The most well-known cryptocurrency, the Bitcoin, is an online payment system invented by the mysterious Satoshi Nakamoto, who supposedly created the protocol used in the Bitcoin cryptocurrency.
No one knows who he or she is and, whenever someone thinks they’ve outed the creator of the Bitcoin, something or someone comes along to dispute the findings.
That said, Bitcoin has been dubbed “the new gold” and has become increasingly popular.
One of its advantages is that you can transact directly with a person who wants to buy or sell Bitcoin without authorities such as banks and governments taking a slice of the pie in taxes or charges. Not yet, anyway.
Bitcoin has enjoyed insurmountable growth and is up by about 200% so far this year. Some think the cryptocurrency bubble is about to burst, as the tech bubble did in 2001.
Floris Slabbert, country manager of Ecsponent Financial Investment Services, says: “I believe cryptocurrency is a dangerous thing to play with. Anything that goes up must come down. Make sure you fully understand it and the associated risks.”
Whether you invest in gold medallions, Krugerrands or cryptocurrencies, one of the biggest issues is how to store these valuables.
When it comes to gold medallions and Krugerrands, you should typically keep them in a safe at home or, ideally, in a bank vault.
Taking out insurance on the coins would be prudent, especially considering the high rate of home robberies and bank heists.
For Bitcoins or other cryptocurrencies, storage and safety are also paramount. You could store your Bitcoins on a USB drive (at your own risk) or through desktop, mobile or online wallets. Storage comes with costs, so make sure you do your research.