Rare U.S. numismatic coins are true American treasures, highly sought after worldwide because very few coins from the 18th, 19th, and early 20th century have survived in such pristine condition (Uncirculated or Proof mirror-finish).
U.S. rare coins have historically outperformed bullion coins because of their very limited supply and ever growing demand.
Dr. Ray Lombra's Congressional Study documented that a diversified portfolio of U.S. rare coins had a 14.3% per-year growth rate over a 25-year period (1973-1998).
Major Factors Determining Numismatic Value
1. SCARCITY: Numismatic coins are, by their nature, becoming harder to find every day. Therefore their value is likely to increase substantially over time. The number of coins originally issued (mintage) is not always an accurate indication of scarcity. It is the interplay of demand with the remaining supply that determines scarcity. Population reports also help indicate monthly changes in a coin's scarcity or "survival" rate.
2. CONDITION: The condition of a coin is one of the key factors in determining value. The grading of a coin is performed under exacting specifications that require specialized training. The recognized specifications of the grade are a decisive factor in the value of a numismatic coin. Numismatic experts use a numerical scale from 1 to 70 to describe condition, giving the obverse (front) and reverse (back) of each coin equal examination.
3A. SUPPLY: The degree of collector and investor demand plays a key role in determining a coin's value. Rare coins are no longer minted, so the supply is very limited due to: attrition loss, mishandling, donating collections to museums, hoarding, government melt down and government intervention.
3B. DEMAND: A coin's rarity, historical significance, quality and track record can all influence demand for a coin. Coin collectors often build life-long collections with no immediate intention to sell, whereas investors are more concerned with growth and return. Certified coins are placed into a hermetically sealed, tamper-proof plastic holder with its grade and certification permanently displayed.
U.S. Rare Coins Reduce Portfolio Risks
According to an older study by Dr. Raymond Lombra, Associate Dean, Research and Graduate Studies at Pennsylvania State University in State College, Pa., "The two top-performing investments over 25 years were stocks, at 14.6% per year, and high-quality, rare U.S. gold coins, at 14.3% per year. A broader index of rare U.S. coins, including all types in grade Mint State-65 (on a scale of 1 to 70), performed at 18% per year over the same period."
In 1995, Dr. Raymond Lombra, presented a 40 page report to Congress on the use of rare coins and gold in IRAs for the Coalition of Equitable Taxation. Here are his major findings:
1. "A detailed analysis of hypothetical portfolios reveals that over the period a portfolio consisting of 5% coins, 5% gold and the rest stocks, Treasury bonds and Treasury bills would have increased portfolio returns at the same time that it decreased overall portfolio risk. Given the turbulent economic conditions encompassed by the period, such and outcome is remarkable, suggesting that holding 5-10% of an IRA(individual retirement account) in gold and coins is both warranted and prudent."
2. "Measures of risk and returns aside, legitimate concerns about liquidity and safety are examined. Drawing on extensive evidence pointing to documented improvements in the markets for precious metals and coins (particularly those improving the information available to market participants), the practices and protections were judged to equal or better than those found in the markets for a variety of investments allowed within IRAs under current law."
3. "The notion that allowing gold rare coins in IRAs would prove unproductive, in the sense that diverting funds from productive uses is carefully considered. Since coins and bullion within portfolios are not consumed, but represent savings, their acquisition can improve saving at the margin and therefore augment the pool of funds available to finance growth enhancing investment spending. How precisely a dollar enters the pool is largely irrelevant. Since widening the range of choices within IRAs encourages broader participation and thus increases savings, and since precious metals and coins improve the investment performance of IRAs, discriminating against such investment options is counterproductive and especially unwarranted in a nation experiencing a significant savings shortfall."