Wall Street is learning to respect this 6,000-year-old, high-return, low-risk, 10 Billion Dollar investment vehicle

Current bull market offers outstanding opportunities for individual and institutional investors
In 2005 I was asked to provide information to a legislative committee regarding the financial merits of allocating a small portion of a multi-billion-dollar institutional investment portfolio to rare coins. The committee asked me to prepare to answer five questions:
1. Is it safe to invest in rare coins?
2. Is the size of the US rare coin market sufficient to provide adequate liquidity?
3. Who among well-known people has successfully invested in rare coins?
4. How have rare coins performed as investment vehicles in the past?
5. What is the current market outlook for rare coins?
After my testimony, a new way of thinking about the questions struck me: Managers of endowment funds, public and corporate pension funds, and similar institutional investment funds are fiduciaries. They have a legal responsibility to act in the best interests of the institutions or individuals on whose behalf they are investing. That should mean that they are required to investigate and act on the facts rather than unquestioningly accept conventional investment wisdom, particularly when that wisdom comes primarily from stockbrokers, managers of mutual funds and hedge funds, and investment advisors with a financial interest in promoting stocks and bonds. Individual investors, while not legally required to think outside the box, would be wise to undertake similar fact-finding. As my answers below demonstrate in detail, the evidence is compelling:
Investing in rare coins is safe (in fact, because rare coins are a true portfolio diversifier, they decrease risk and increase safety).
The market is liquid, with many transactions taking place almost instantly on electronic networks.
Among well-known people who have invested in rare coins that appreciated enormously in value are the Rothschilds, Willis J. duPont (DuPont de Nemours & Co.), Josiah K. Lilly, Jr. (Eli Lilly CEO), and former US Congressman Jimmy Hayes.
Over the past 25 years, investment-quality rare coins have outperformed stocks, bonds, and gold.
The current outlook for the rare coin market is that the bull market that started in 2002 will continue for at least three or four more years from now (January 2006).
Let’s examine the evidence.


I) Is it safe to invest in rare coins:

Since the beginning of recorded history 6,000 years ago coins, particularly those minted from gold and silver, have served as storehouses of financial value. Collecting specific coins (as opposed to just accumulating masses of coins) is a more modern phenomenon, dating back over five centuries. As collectors discovered that some coins were harder to find than others, the concept of "rare coins" arose. The law of supply and demand created a premium for these coins above their face value or the value of the precious metals they contained.
In May 2005, a 1913 US Liberty nickel - one of only five of its type known to exist - was purchased in a private treaty sale for $4.15 million. Mike Sherman of Collectors Universe completed a study of all the original 1913 nickels since 1941, when they were first sold individually. (The five coins remained as a set until then.) Sherman recorded the prices from all 20 sales from 1941 to 2005; they showed an average return of 12.2% compounded annually. In 1913 each nickel, including the one that sold in 2005 for $4.15 million, was valued at $80. Although the 1913 Nickel is a low-population (5) coin, many other US rarities have also demonstrated extraordinarily high levels of appreciation. Dr. Raymond Lombra, Dean of Economics at Penn State University, in a study we’ll talk about more, discovered that high-grade rare coins showed an average annual gain of 14.1% in the 25 years from 1973-1998.

Primarily in the past 60 years, buying and selling rare coins for investment purposes has taken on a life of its own. Although they participate in the market alongside collectors (and benefit from the demand generated by collectors), many purchasers of rare coins view their acquisitions primarily or entirely as investment vehicles



WHY COINS HOLD VALUE

Every investment involves risk. Even cash in an FDIC-insured bank account is subject to the erosion of inflation. And even Fortune 500 companies such as Enron, WorldCom, Delphi, and four of the six legacy US airlines go bankrupt, leaving their stock and frequently their bonds virtually worthless. Short of bankruptcy, companies can and do issue additional shares of stock, diluting the shares already held by investors. Governments print money and inject it into the economy, diluting the value of cash; over the past three years the US dollar has dropped about 25% in value relative to a basket of other currencies, and about 60% relative to gold. Even many non-paper assets, such as mass produced collectibles, are, well, mass-produced. When the crazes ended for Cabbage Patch Kids and Pokemon figures, their essentially infinite supply tended to devalue them precipitously.
Some investors seeking to balance their portfolios with an asset class not subject to these types of risk are purchasing rare coins. Rare coins are totally immune from bankruptcy and close to immune from dilution. The US Mint will never manufacture another 1913 Liberty Head Nickel. And decades of enormous premiums have pulled almost all rare coins not held in collections into the marketplace. Even when a shipwreck or hoard is discovered, marketing based on the excitement reaches beyond the numismatic community to the public. That has increased the number of serious collectors and investors, so that over the years demand has grown at a greater rate than supply.

Coins are not pieces of paper given value only by promises from a government or the future prospects of a corporation. Coins have intrinsic value. Therefore they never lose all their value and they always retain the possibility of rebounding from a decrease in value. In fact, they always have, which explains why, despite ups and downs in the market, rare coins are up 6,466% in 35 years. The first duty of fiduciaries is to protect assets. They should therefore view immunity from total loss and propensity to rebound as compelling strengths in an investment vehicle. So should individual investors concerned with protecting and growing assets for themselves and their families

Rare coins increase safety through portfolio diversification

Dr. Raymond Lombra, Dean of Economics at Penn State University, conducted a study entitled Managing Portfolio Risk: An independent economic analysis of the investment performance of rare U.S. coins in diversified portfolios for the period January 1979 to December 2003. Dr. Lombra found that rare coins had a .35 correlation with stocks. (1.0 is perfect correlation, moving exactly in tandem with stocks and offering no true diversification; -1.0 is perfect inverse correlation, moving exactly opposite from stocks - not a good thing if you expect the long-term trend in stocks to be up.) US Treasury Bonds provided somewhat greater diversification from stocks than coins, at .11, but bonds dimmed and coins shined at protecting portfolios against inflation.

Rare coins protect against inflation

When Dr. Lombra studied correlation with inflation, he found that bonds are adversely impacted by inflation and coins, as one might expect, tend to rise during inflation. For the period 1979-1986, US Treasury Bonds’ correlation with inflation was -.71 (reflecting a huge loss); for 1987-2003 it was -.08. For the same periods, rare coins correlated .69 and .01; stocks correlated .16 and -.06.

Rare coins increased return

Dr. Lombra compared performance over the 25-year period of 10 model portfolios with a variety of asset allocations. Five allocations were on the more conservative side, with between 31.7% and 33% of assets invested in stocks and between 63.4% and 66% invested in Treasury Bonds and T-Bills. Five allocations assumed more risk, with between 47.5% and 50% of assets invested in stocks and between 47.6% and 50% of assets invested in Treasury Bonds and T-Bills. Each portfolio had either 0% or 5% invested in U.S. rare coins graded MS65 (more later about coin grading), 0% or 5% in U.S. rare coins graded MS63 through MS65, and 0% or 5% in gold. No portfolio had more than a total of 10% invested in these tangible assets.

Among the five conservative portfolios, the highest average annual rate of return -10.6% - belonged to the portfolio with 5% in MS65 rare coins and 31.7% each in stocks, Treasury Bonds, and T-Bills. Among the five more aggressively invested portfolios, the highest average annual rate of return - 11.4% - also belonged to a portfolio with 5% in MS65 rare coins. In this case, 47.5% was invested in stocks, and 23.8% each in Treasury Bonds, and T-Bills.

If a similar study were conducted for the period January 2002-December 2005, it would show somewhat different results. With interest rates on Treasury Bonds and T-Bills low and stocks moving sideways, there have been raging bull markets in rare coins and gold. For the 4-year period ending December 31, 2005, the portfolios with the highest rates of return by far would be those with 5% in MS65 rare coins and 5% in gold

Coin authentication and grading

Rare coins tend to appreciate, particularly in inflationary periods, and collectors and their heirs have realized fortunes on the sale of coins that had been held for decades. Until 20 years ago, however, investing in rare coins would have been a dicey proposition for most people. Investors who were not experienced numismatists would have had a difficult time distinguishing between authentic and counterfeit coins and between valuable specimens of a particular issue and coins that has been cleaned and polished to resemble them. Even among genuine, unaltered coins, they would have been unable to detect the fine distinctions that separate one grade from another - distinctions that can yield price differentials of hundreds, thousands, and even tens of thousands of dollars. Investors would have had to rely entirely on the expertise and integrity of their coin professionals.

The advent of third-party coin grading services in 1986 opened the way to safe investing in coins by non-numismatists. The grading services encapsulate the coins in tamper-evident transparent holders, known among numismatists as "slabs." Also encapsulated in each slab is a certificate of authenticity and a grade, such as "MS65," which means that on a scale of 1-70, with 70 meaning a perfectly minted and preserved coin, the coin rates a grade of 65. ("MS" stands for "Mint State" and designates the upper end of the grading scale, from 60 to 70.) Rare coins could now be bought and sold like shares of stock. One authenticated 1911 $5 U.S. Gold Indian graded MS65 by one of the respected grading services, such as NGC or PCGS, is considered to be the same as any other (although the most finicky collectors and investors hunt in person for "high-end" specimens within a grade). Every day thousands of rare coins are bought and sold "sight-unseen" through Internet auctions sites and television shopping channels. ("Sight-unseen" is the industry term for these sales; in fact retail Internet auction sites show photos of the coins, and TV shoppers see them displayed on their screens.)

20 years of accurate supply data

In the long run, the key to determining the value of a particular type of coin in a particular year and grade is its relative rarity. Take two investment-quality coins. Coin A is selling for the same price as a Coin B, but there are five times as many A’s as B’s available. I would suggest, barring extraordinary factors, that accumulating B’s is the better investment. But, how do you know there are five times as many A’s as B’s? Before the grading services, you could make an estimate based only on original mintage figures (often involving data over 100 years old) and a coin professional’s evaluation of the volume of transactions seen at coins shows, auctions, and other sectors of the marketplace. Since 1986, however, the three top coin grading services, PCGS, NGC, and ANACS, have kept and published highly reliable statistics on the 20-million coins they have authenticated and graded, broken down in the case of US coins by type of coin, year, mintmark if any, and grade. For investors, this data has enormously increased the transparency of the rare coin market. It is roughly comparable to the published information in the equities markets on market capitalization and shares outstanding.


Industry self-regulation programs

Investors choosing to invest in rare coins, from the largest public agency or pension plan to the smallest individual investor, can and should protect their investments by working only with numismatic professionals of the highest standing. They should select dealers who have been members of the Professional Numismatist Guild and the American Numismatic Association for a minimum of 10 years. Institutional and very large individual investors should select fund managers and independent monitors (experts not involved in their transactions) based on the same criteria

Safe coin storage and transport
Rare coins do not pay interest or issue dividends. In that respect, they are similar to growth stocks: return on investment comes from buying low and selling high. Between purchase and sale, the coins must be transported and stored safely. Individual investors typically rely for storage on home safes, vaults or bank safe-deposit boxes.
Institutional and large individual investors can obtain greater levels of security, as well as personalized storage services, by availing themselves of the specialized custody services offered by a professional depository company, usually for reasonable fees. Such companies provide insured and highly secure storage of assets, holding them in their owner’s name and the off-balance sheet of the depository company itself. In addition to periodic inventory statements, some of these companies may even provide individual third-party transaction confirmations, which verify directly to the account owner every deposit, transfer, or withdrawal affecting each coin in the account, further enhancing the overall security offered by the depository.




2) Is the size of the US rare coin market sufficient to provide adequate liquidity?
"Profits are made from buying" is a mantra among coin dealers. And it is true that buying the right coins at the right time at the right price creates the potential for profitable sales. Nevertheless, investing in coins produces profits only when sales transactions take place. Therefore fund managers and individual investors considering investing in rare coins should evaluate the liquidity of the rare coin market. A liquid market requires enough buyers and sellers so that, on any given day, there is plenty of trading volume. It also requires sufficient dollar volume so that even a relatively large institutional investor can make a big sale without depressing the market. Let’s first consider the number of participants in the US rare coin market, then the dollar volume.
Number of coin collectors and investors

Leading rare coin experts that I have polled concur, based on their evaluation of industry statistics and US Mint data on sales and coins removed from circulation, on the following estimates. Please note that these figures are worldwide: many customers of US rare coin outlets do not reside in the United States. This is particularly true of those who purchase via the Internet.
Casual US Coin Collectors: 50,000,000 Collectors who save US coins, such as Statehood Quarters and Sacagawea Dollars, that they pull from change or get in rolls from banks. Some are exposed to rare coins when they shop for supplies, such as boards and albums for displaying Statehood Quarters.
Average US Coin Collectors: 2,000,000 Occasionally purchase coins on the Internet or from television shopping channels, government mints, or in response to print ads and direct mail.
Serious US Coins Collectors/Investors: 250,000 Collectors/investors who have developed a numismatic strategy, participate in registries, and have established a relationship with one or more dealers. They buy quality rare coins for their collections or for medium to long-range investment goals such as such as college tuition, retirement, and estate building.

Dollar volume of US rare coin market

Within the United States retail rare coin sales total about $10 billion annually (a conservative estimate detailed below). This figure does not include bullion coins such as US Eagles, Canadian Maple Leafs, South African Krugerrands, or Vienna Philharmonics, or US Mint coins meant for circulation, such as the State Quarters. Nor does it include bullion products from private mints or bank-issued bars, plates, or ingots.

Bullion coins are silver, gold, and platinum coins whose intrinsic metal content accounts for about 90% of their value. Investors in and collectors of bullion coins are exposed to rare coin marketing and frequently become buyers of rare coins. Therefore bullion-coin marketing indirectly helps raise demand for rare coins.

If a pension fund invested $100 million/year in rare coins and had 100% turnover/year, its sales would represent only 1% of the US market. $100 million/year is more than most funds - let alone private investors - would contemplate investing in coins, and 100% turnover would indicate that on average coins were being held for too short a time to reach the optimal balance between yield and risk. Therefore, in terms of overall market size, a fund or individual investing in coins would have no problem converting numismatic assets to cash

The breakdown of the $10-billion annual retail sales of rare coins to US collectors and investors is segmented below:
Traditional auction houses - $1.0 billion
US Mint and World Mints - $1.2 billion
Internet auction sites - $1.1 billion
Direct-to-consumer - $0.5 billion
Telemarketing companies - $1.0 billion
Television shopping channels - $1.1 billion
400 largest US traditional numismatic dealers - $1.2 billion
4,600 smaller US numismatic dealers - $2.3 billion
25,000 to 50,000 part-time dealers and hobbyists - $0.6 billion
The above estimates, which we have tried to keep on the conservative wide, total $10 billion.




3) Who among well-known people has successfully invested in rare coins?

Until recently, most long-term purchasers of what I refer to as "investment-quality" rare coins have been hobbyists who were buying primarily for enjoyment rather than financial gain. Nevertheless, they and/or their estates realized millions of dollars in profits through appreciation of the coins they had purchased. On the average, their coins appreciated more than their stocks, real estate, and art.

Until recently, most long-term purchasers of what I refer to as "investment-quality" rare coins have been hobbyists who were buying primarily for enjoyment rather than financial gain. Nevertheless, they and/or their estates realized millions of dollars in profits through appreciation of the coins they had purchased. On the average, their coins appreciated more than their stocks, real estate, and art.
The Rothschild family fortune began in the 1760s.
Josiah K. Lilly, Jr., a third generation chief executive of the Eli Lilly Pharmaceutical Company, died in 1968. His estate donated his collection of over 6,000 gold coins from around the world to the Smithsonian’s National Numismatic Collection.
Willis J. duPont, of the family that founded DuPont de Nemours & Co., was a major coin collector.
John J. Ford, Jr. died July 7, 2005 at age 81. As a teenager during the Great Depression, he paid 15¢ for a Confederate bill that later sold for $200.
Louis Elisaberg (1896-1976), dubbed "The King of Coins" after photos of his gold and silver coins shone forth from the pages of the April 1957 Life magazine, assembled the only complete collection of US coins: every type, every date, every mint mark.
John Jay Pittman (1913-1996), born in rural North Carolina, was 10 years old before he owned a new pair of shoes. He became a chemical engineer at Kodak and, on his adequate but limited income, slowly proceeded to acquire US and foreign coins for his collection.
Former US Congressman from Louisiana Jimmy Hayes put his collection of finest known "first year of type" US coins on the auction block in 1985 to finance his successful run for a seat in the US House of Representatives.



4) How have rare coins performed as investment vehicles in the past?
As an asset class, rare coins have outperformed conventional investments such as stocks and bonds. A broad rare-coin index, the CU3000, is up 6,466% since January 1970 and up 18.5% in the past three years (as of December 31, 2005). By comparison, The Dow Jones Industrial Index has risen 1,400% since 1970, excluding dividends. And, as Dr. Lombra’s study (sited earlier) showed, when rare coins were included in diversified portfolios, they increased overall return and reduced risk.
I would like to go into a little more detail here about three points that are critical for individual and institutional investors considering purchasing rare coins:
Know your time frame.
Buy quality.
Work with a trustworthy expert.
Know your time frame
As we have pointed out, the "population," as it is called, of any particular rare coin issue is essentially static. The population of people, however, grows. More people create the potential for more coin collectors and investors. Ultimately, more collectors and investors competing for the same limited number of coins leads to the outstanding gains we’ve described.

As with stocks, bonds, real estate, and other investment classes, while the long-term direction of the rare coin market is up, there are peaks and valleys along the way.



The spike in coin prices in 1989-1990 jumps out at you when you look at this chart, and tends to obscure the 6,466% increase from 1970 through 2005. The spike was a short-term market effect related to the
Widespread acceptance of certified grading
Limited supply of certified product
Rush to tangible assets resulting from the instability caused by the buildup to the first Gulf War
If you are an individual investor planning on retiring in 20 or more years or building a legacy for your children or grandchildren, and you can rely on other assets to take care of any needs for cash that might arise, you are ideally positioned to benefit from the long-term tendency of rare coins to increase in value. A good strategy for you would be buy and hold. You could purchase all the coins you intend to own now or plan to invest a given amount each year. With a perspective of two, three, or more decades, the direction and level of the current market would be of little concern to you. Nor would it be critically important to select "hot" issues that are likely to appreciate the most within the next year or two. No one knows what the hot issues will be several decades out, so you would be well served to assemble (if you were investing enough to do so) a broad range of quality rare coins.

Look at the chart above. If you had bought your coins in 1970, or from 1970 through 1985, you’d be very pleased with the increase in value of your coins today, and you would not be all that concerned about the fact that there was a sharp rise in value in 1989, and a sharp fall in 1990. In fact, you might see the fall as another buying opportunity and/or as a sign of another sharp rise in the making.

Your situation is different if you are, for example, building a retirement portfolio and planning to retire in eight years, or if you are a trustee of a defined-benefit pension plan that is obligated to pay retirees every month. You’ll want to know the direction of the current rare-coin market (which we take up in the next section of this article) and which coins are most likely to show maximum appreciation in value during your time frame. If you had jumped onto the coin mania in the summer of 1989 and sold your coins at the 2002 low, you’d not be a happy coin investor today. If you had kept your coins from 2002 to the present, one look at the chart below would have you feeling a lot better about the outlook for your investment. With rare coins, as with any investment, you should know your goal, including your time frame.




Buy quality
Every day, people buy thousands of coins graded Fine (F12), Very Fine (VF20), Extremely Fine (EF40), Choice Extremely Fine (EF45), About Uncirculated (AU50), and Choice About Uncirculated (AU55). As the numbers in the parenthesis indicate, these grades are all below Mint State (MS60-70) on the 70-point scale that is used to grade US rare coins. In addition, people buy many coins in the low Mint State grades, such as MS62-63.
For a collector with limited income and many "holes" to fill in his/her collection, this buying strategy makes sense. The collector derives satisfaction from moving toward completing a collection, from owning the coins and studying their history, more than from anticipating or realizing return on investment. (In very old and or/very rare issues, a relatively low graded coin may be among the best specimens known to exist, in which case buying an EF45 or an even lower grade could be buying quality. Quality is relative to availability.)
However, as the experience of Louis Eliasberg, John Pittman, and others demonstrates, higher quality coins, although they cost more to purchase, appreciate at a higher rate and therefore produce higher return on investment. Eliasberg, who constantly sought to own the highest graded specimen of any issue, calculated that he had an annualized return of 119% - about 10 times the return on the CU3000 Index!

Work with a trustworthy expert

Whether you are an individual investing $10,000, $100,000 or $1 million in rare coins, or a pension-fund trustee investing $5 million or $25 million, consistent success requires developing a close relationship with an experienced numismatist whose fingers are on the pulse of the market, and who can help you answer the "devil is in the details" questions about buying quality. Select a professional who is a member of PNG and the ANA (see Section 1 above) for at least 10 years and who has experience investing in coins and working with investors, whose needs differ from those of collectors. The professional should proactively ask you, and help you determine, how much you plan to invest over what period of time, your time frame for return on investment, the role coins are to play in your overall portfolio, and other questions to clarify your goals for investing in rare coins.


5) What is the current market outlook for rare coins?

Before we get into an exciting subject for me - the current bull market in rare coins - let me say again that for the long-range investor who does not need to generate income from this numismatic portion of his or her portfolio, it doesn’t matter. Based on past performance, if you’re planning to hold your rare coins for at least 20 years, the numismatic portion of your portfolio is likely to outperform any asset class with comparable high liquidity and low risk.
In June 2002 I wrote and published an article (you can read it on www.coinmag.com) entitled "A Coin Market Like No Other Creates Highly Profitable Opportunities: The US Coin Market Enters a Major Up Cycle." The article described "11 early signs of a bull market in investment quality US gold and silver coins." In the past three years, just about everything the article predicted has happened. Interest rates have risen. Federal budget deficits have increased. War and terrorism have, unfortunately, increased. Stocks have moved sideways, with the bursting of the tech bubble still gripping the minds of investors. Silver and gold are up. Cash, particularly the weakening US dollar, has proven a poor alternative to equities.

In addition, more recently, fears of the bursting of the housing bubble and of inflation driven by ever rising debt and higher energy prices have spooked investors. According to the Associated Press (Oct. 7, 2005), "Gold is hovering near 17-year highs. What that means depends on who’s doing the interpreting. According to one school, demand from China and India is pushing the price higher, but another school says gold is up because Western investors are convinced inflation is much higher than their governments admit." On December 31, 2005 the price of gold, historically an excellent predictor of inflation, was up 18.6% from 12 months previously.

Media attention to 25-year highs in the precious metals market helps the rare coin market. New buyers of bullion coins enter coin shops or visit coin sites online and are exposed to rare coins. Prices of the generic date $10 and $20 US gold coins increase dramatically and provide a higher floor for investment-quality low-population coins. $100 million invested in the gold bullion market buys less than 95 tonnes of gold and would move the market $3 to $5 - less then 1% at the current price of well over $500/oz. Just $50 million, however, flowing into investment quality rare coins could move the market 10-15%.



Where had all the collectors gone?

For a long time the rare coin market was driven by collectors, not investors. Where had all these collectors come from? Most of them became interested as boys (over 90% were male) going through their pocket change and putting coins with particular dates and mintmarks into the corresponding holes in coin boards. A small percentage of these millions of boys developed a long-lasting fascination with coins and began collecting rarities that did not exist in pocket change and had to be purchased from dealers or other collectors.

Beginning in the 1960s and extending into the 1990s, coin collecting from pocket change died out. Coin collectors were not being generated and, as a group, they became older and older. On January 4, 1999 coin collecting from pocket change returned with a boom and a roar. That was the release date of the Delaware Quarter, the first coin in the US Mint’s 10-year, 50 State Quarters® Program. The Mint estimates that as many as 130 million Americans - 44% of the population - collect State Quarters, and, with five quarters released each year, the program will run through 2008. The Mint estimates that collectors have already spent $4 billion on quarters that have been removed from circulation.

In 2007, during the final two years of the 50 State Quarters Program, the Presidential Dollar Program will start. Legislation creating this program was signed into law by President Bush December 22, 2005. It authorizes the Mint to issue a series of $1 coins commemorating all former US presidents. Presidents will be commemorated in chronological order, starting with George Washington. At four coins per year, the series will take 9.5-9.75 years to complete (depending on whether the next couple of presidents are re-elected). The bill also creates a gold bullion coin program of images of former first ladies. These coins will have a $10 face value.

The Presidential Dollar Program is likely to keep millions of Statehood Quarter collectors focused on coins for another decade. They will visit coin shops, TV coin shopping programs, and numismatic websites, where they will be exposed to rare coins. The Presidential Dollar Program will also accustom Statehood Quarter collectors to paying higher prices for their coins. And it will attract people who are more interested in presidents than in states. In our celebrity-driven culture, this could be a major marketing plus
Tax and retirement benefits increase the market

As a result of lobbying, primarily by ICTA, 21 of our 50 states have enacted sales-tax exemption for rare coins, based on the concept that they are investments rather than retail items. Often a minimum purchase, such as $1000, is required for the sales tax to be waived. Including the five states with no sales tax, 26 states do not tax investments in rare coins.

In 1986 the US Congress approved the inclusion of silver, gold, and platinum American Eagle bullion coins for Individual Retirement Accounts, including traditional, Roth, and SEP IRAs and Keogh plans. Bullion and rare coins are currently permitted in certain corporate pension plans, but were disallowed along with other "collectibles" from self-directed plans such as 401(k)s in 1981. Legislation now pending in the US Congress would enable investors to include certified coins in self-directed retirement plans, including IRAs and Keoghs. This legislation has been introduced by Senator David Vitter (R-LA) as bill S 804

A new and stronger bull market

The 1981-1989 rare-coin bull market, particularly in its final stage, resulted from the entry of investors into what had been a relatively tiny, collector-dominated market. The new money chased coins relatively indiscriminately; as a result, coins in just about every category and grade increased in price simultaneously.

Today’s bull market, which already includes significant investor capital, is larger and more sophisticated. It has "legs." Rather than a simultaneous rise of all coins, we have seen a market led by one sector after another, showing strategic buying by investors and collectors. At different times from 2002 through 2005, the market has been led by gold commemoratives, key dates and rarities, Morgan silver dollars, and territorial pieces.

Set registration powers the market

Set registration, which did not exist in the 1980s, is a powerful driver of today’s bull market, and another factor behind the higher appreciation rate of quality coins. As of December 31, 2005 there were 16,583 sets registered on PCGS, of which 15,785 consisted of US coins. NGC had 11,487 registered sets with 11,376 sets consisting of US Coins. Collectors passionately compete to have the highest quality and most complete sets within their categories, which means that they bid up the prices of low-population, key-date coins. New categories - with new awards and recognitions - are constantly created. This excerpt from NGC’s full-page ad in the Oct. 24, 2005 Coin World conveys the flavor of set registry. Under the headline "Sets. Apart." The text reads:

"Announcing the 2005 NGC Registry Awards. We’re looking for the top sets in the world - and as the most inclusive registry in the hobby, NGC will see thousands of world-class sets. Make sure yours are among them, and see if your collection has what it takes!"

How far will the bull run?

No one can say for sure how long the current bull market will last. What is clear is that all the factors contributing to this bull market remain in place, with no sign of abating. In fact, given the precarious situation of the global economy related to shooting wars and trade wars, terrorism, rising interest rates, rising energy prices, inflation, currency instability, the housing bubble, and other factors, it appears that the outlook for hard assets such as rare coins remains favorable for the foreseeable future. In my 40+ years of participation in the coin market, I have never seen a better time to invest in rare coins.

In conclusion

We’ve shown that
Not only is it safe to invest in rare coins, but that investing in rare coins will add true diversity to a portfolio. Rare coins tend to move independently of equities and have strongly negative correlation with inflation. The rare coin market is large and, particularly as a result of online trading of certified coins, liquid. Investors will be able to realize profits by selling their coins. As new collectors and investors enter the market, demand for the investment-quality rare coins increases, but the supply is essentially static. This is a classic formula for profit.
A number of well known people (and/or their estates) have made enormous profits from their investments in rare coins. The most successful investors have concentrated on acquiring coins of the highest quality available, and they have enjoyed a rate of return far above that of the rare coin indexes, let alone that of the stock market.
Despite the fact that rare coins are currently 64% below their 1989 peak, over the long haul they have outperformed stocks and bonds. In the three bull markets since the 1989 peak, the high exceeded the previous high. By now you can probably recite the following data: A broad rare-coin index, the CU3000, is up 6,466% since January 1970 and up 18.25% in the past three years (as of December 31, 2005). Two indexes that are restricted to higher quality coins have increased even more. During the same period (1/1/1970 to 12/31/2005), the Mint State Type Coin Index has risen 7,241% and the Mint State Rare Gold Coin Index is up 9,523%. By comparison, The Dow Jones Industrial Index has risen 1,400% since 1970, excluding dividends. The historical evidence suggests that for funds or individual investors with a long-term outlook, allocating a portion of their portfolio to rare coins is a solid, rational, even conservative way to protect and grow assets.
The current bull market for rare coins started in 2002. As 2006 begins, the factors propelling this market are even stronger than they were at its onset. Inflation in particular has become a serious source of concern to investors, and rare coins are among the strongest hedges against inflation. The evidence suggests that the current bull market will continue for at least three or four more years, providing ample opportunities for profit even in the short to medium term. However, three or four years are not equal to eternity. Investors who want to take maximum advantage of the current bull market should therefore not procrastinate in planning their entries. (Nor should they jump in without a plan.)

To take advantage of the opportunities for protection and growth of assets, institutional and individual investors should work closely with an experienced coin professional who has been a member of the Professional Numismatists Guild (PNG) and the American Numismatic Association (ANA) for a minimum of 10 years. Select a professional who invests in coins and works with investors, whose needs differ from those of collectors. The professional should help you determine how much you plan to invest over what period of time, your time frame for return on investment, the role coins are to play in your overall portfolio, and other questions to clarify your goals for investing in rare coins.

Many pension funds already use independent consultants to monitor their stock and bond holdings. I recommend to my institutional clients that they consider hiring another coin professional, one not involved in the fund’s purchases and sales, to monitor their fund’s investments in rare coins.

Is it safe not to invest in rare coins?

Based on the research and thought put into this article, It has been concluded that Question 1, "Is it safe to invest in rare coins?" should be rephrased. Fiduciaries and others concerned with protecting and growing assets should ask themselves, "Is it safe not to invest in rare coins?"


MNM INVESTMENT GROUP1-866-995-3301INFO@MNMINVESTMENTGROUP.COM