Alternative investments gain mainstream interest, but knowledge, passion for subject help(3)
Coins
While financial advisers tout complex vehicles for maximizing returns, keeping your money as currency can be a pretty good strategy by itself. Numismatics, the time-honored hobby of coin collecting, has seen annual double-digit returns during the recession, thrusting the studious pursuit into the investment spotlight.
Fueled by the rise in precious metals and an influx of interest, the value of Coin World magazine's annual rare coin index increased by 69 percent from 2005 to 2010, including a 10.3 percent gain last year. The S&P 500 went on a wild ride but was essentially flat over the same period.
"Back in 2008, when the stock market lost so much of its value, people were looking for alternatives," said Beth Deisher, editor of Coin World magazine. "We saw significant money come into the coin market at that time, and it has really built since then."
The index tracks a basket of 76 classic U.S. rarities — from copper to gold coins — worth a total of more than $13 million, placing an average value of $171,000 on each coin for what was once pocket change. Prior to 2000, only four coins had ever sold for $1 million or more at public auction. Since then, about four sales each year top the million-dollar threshold, with the highest — a 1933 Saint-Gaudens $20 gold double eagle — going for nearly $7.6 million in 2002, according to Deisher.
"It's just absolutely astounding how those prices have moved over the last decade," Deisher said. "All the records have been shattered in the last 10 years."
The United States hasn't produced gold coins for general circulation since going off the gold standard in 1933. At the time, President Franklin D. Roosevelt outlawed private ownership and mandated that all gold coins in circulation be exchanged for other currency. The gold coins turned in were melted down, made into bars and stored at Fort Knox in Kentucky, the country's bullion depository. The ban on private gold ownership was lifted in 1974.
Most silver coins gave way to nickel-plated copper after 1964. While prices tend to rise in lockstep with precious metals, silver and gold coins are usually worth more intact than melted down.
"Most everybody is going to want to be aware of where the precious metals are trading because that kind of gives you a floor," Deisher said. "Most of those are worth much more as a numismatic collectible."
While gems can occasionally be found in a jar of change, most serious collectors buy coins already graded and sealed at auctions, online or from dealers. Keeping collections in display books or on poster boards, once part of the appeal for hobbyists, is no longer a common practice amid soaring valuations.
"If you have a major collection, most people these days do not store them in their homes," but rather in bank vaults or depositories, Deisher said.
Despite the run-up in coin prices, experts advise caution before putting all your money into money.
"The thing that always scares us is when we get phone calls periodically from people saying they're going to sell all their stocks and invest in rare coins," said Jay Beeton, marketing director of the American Numismatic Association, a Colorado-based nonprofit coin collecting organization with nearly 33,000 members.
As with any investment, Beeton advises learning about coin collecting before plunging into a purchase. A good place to start would be the ANA's annual World's Fair of Money, Aug. 16-20 in Rosemont, with exhibits, educational seminars and more than 1,200 coin dealers on hand.
Given the cyclical nature of any investment, Beeton suggests novice coin collectors take a long view and assume the mindset of an avid hobbyist.
"If your primary interest in the world of numismatics is making lots of investment money off of coins, then you're probably not doing the right thing," he said.
