At last count, almost 3% of total self-managed super fund assets were invested in ‘other’ investments, a level that has been relatively consistent over the past six years.
But what’s inside this ‘other’ category? Well, you can throw just about any unusual asset, including all collectables, into this bucket. For example, it might include artwork, stamps, rare coins and bank notes, and even racehorses!
Typically, these types of investments don’t earn income, which means investors are hoping for healthy capital gains. The exception to this general rule is racehorse prize money, if you’re lucky enough to have a horse that makes money.
An SMSF trustee considering investing in these types of assets needs to carefully consider the lack of regular income they generate and how rapidly the investment can be sold if cash is needed. I’ve explained how collectables can be owned in SMSFs in a few articles, including the strict storage rules involved. You can read more about that here.
How your SMSF can become a rare coin collector
One collectable that is gaining some interest among SMSF trustees is rare currency.
Rob Jackman runs the Rare Coin Company, which is a member of the Australian Numismatics Dealers Association (ANDA), a body that self-regulates about half of the rare currency dealers in Australia. He first started working with SMSFs about six years ago and says they now make up about 25% of his business’ turnover.
His website claims that over the long-term, rare bank notes and coins have average annual return of over 13%.
Jackman says anyone investing in collectable currency should be prepared to hold it for a minimum of five years and it’s not something to consider if your timeframe is less than 12 months.
For $10,000 (an absolute minimum of $5,000), he says you can buy a reasonable portfolio of coins and notes.
A happy investor
One SMSF rare coin and note collector, who didn’t want to be named, told me he first invested in collectable coins and notes about five years ago. Before he invested, he spent three years investigating the market because he thought the published returns were “too good to be true”.
Once he committed, he put a fair amount of his then-SMSF assets into a rare coins and notes. He is happy with these investments and has bought more notes and coins not only using his SMSF, but also personally.
He particularly likes the fact the transactions cost him nothing to buy or sell. His nominal costs are annual storage and insurance costs.
Our SMSF collector says diversification between notes and coins is important.
“Sometimes notes do better than coins and vice versa,” he says.
Our collector is receiving a Transition to Retirement pension and says he has to be careful that he factors in the likelihood that it can take a while to sell a particular asset so he can make his pension payments.
Don’t buy just any old coin
When buying these assets, you need to perform the same due diligence on the collectable and the rare coin advisers or dealers as you would for any other type investment.
Jackman strongly suggests you use an ANDA dealer because you can submit a complaint to the organisation if something goes wrong.
As part of your due diligence, find out how long the dealer has been operating, if they regularly deal with SMSFs and how much trading the dealer does each year. Also look at what type of trading is conducted and if the dealer has received any complaints from investors. References from similar investors should be obtained and checked. Information should also be sought from ANDA about any complaints it has received.
It’s important to understand that while investing in unusual assets can be fun and possibly bring you some attractive returns, you are effectively dealing in unregulated markets. That is, it’s not like investing in property, which is governed by State or Territory property law, or shares, which are regulated by the Australian Securities and Investments Commission (ASIC).
Once you’ve bought a collectable for your SMSF, there are strict rules on where you can keep it (generally, they can’t be kept in your home). In regards to rare coins and bank notes, Jackman says you could store them in a bank vault, or some dealers will provide a ‘strong’ storage safe for a small annual fee.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.