Not Just for Collectors: Rare coins and precious metals eyed as investments rather than treasures

In an uncertain economy, which investments provide the greatest level of security to your portfolio?

Surprisingly, it may not be the traditional investments that typically come to mind. Hard assets, like rare coins and precious metals, have been outperforming traditional stocks and bonds for some time, and experts project that this trend will continue.

Coin collecting is known as the hobby of kings, said Douglas Kaselitz of Grosse Pointes Coins & Stamps, pointing to why coins make sensible investments. 

Notable wealthy coin collectors include the DuPont family, Los Angeles Lakers owner Jerry Buss, and the late King Farouk of Egypt. One of Kaselitzs customers bought a collection of nickels belonging to King Farouk for $2,100 in 1972. Its now worth more than $100,000.

The value of hard assets moves in cycles, which coin and precious metals dealers like John Abbott of Abbotts Corporation in Birmingham keep a close eye on. This cycle can span anywhere from 10-33 years, with the average cycle lasting 21 years. The United States is currently in the seventh year of such a cycle where the value of gold, silver, and platinum have all reached historic highs. Abbott expects the price of these metals to increase and continue outperforming conventional stocks and bonds.

Abbott is currently processing several $20-gold pieces, released between 1866-1876, from the second installment of a three-part series of designs featuring the head of Lady Liberty. Depending on the grade of these coins, they can be worth anywhere from $1,200 to $35,000. Portfolios with $100,000 coins are not unusual, Abbott said of the types of hard investments hes seen.

Kaselitz pointed out one such coin, known as an ultra-rarity: the 1913 U.S. nickel, which in 1972 was the first coin to sell for more than $100,000. Last year it fetched $5 million.

But coins dont have to be outrageously expensive to have value. Kaselitz pointed to the $20 St. Gaudens coin, worth $50 to $60 in 1970 and now worth $1,700, as an example of a more common coin that has seen a solid increase in value. You dont have to have ultra-rarities to have profits, Kaselitz said. You just have to have high-quality U.S. coins.

Abbott recommended the Liberty Head series of $20-gold pieces, adding that he would like to see more investments in the first edition of coins from this series but that it can be too expensive for some investors.

For investors interested in diversifying their portfolios with hard assets, Abbott recommends starting with numismatics valued at $1,500. The cost of a coin depends on its grade, and while investors can buy coins in low grade, they wont yield the same long-term returns as higher-grade coins. You want to buy the rare piece in high grade, Abbott said. Its the one that will do the best.

Kaselitz said many coins are available for $800 to $5,000 that are still valuable but more affordable for new investors. He quoted a favorite sayingQuality doesnt cost, it payswhen explaining why high-grade coins make good investments.

Abbott also recommended varying hard investments between numismatics and bulliongold and silver barsand further diversifying between gold and silver bullion.

We think everybody should have a certain portion of their assets in gold and top-quality rare coins, Kaselitz agreed, adding that ultra-high quality rare coins have historically outperformed bullion by at least tenfold.

Abbott speculated that while the value of precious metal may cool down in the immediate future, it will heat up again in July and August as the global value of the dollar declines.

By Taryn Hartman

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