An Astounding Comparison

If you read about my unsuccessful 1985 investment in 1943 Walking Liberty half dollars, you saw how much better it would have been had I purchased a much rarer and numismatically desirable 1921-D Walker.  The $1150 spent for the 1921-D would today be a $4625⁽¹⁾ coin if I had based my decision on solid numismatic fundamentals.  Rather, I purchased a generic date of poor promise that performed dismally.

But there is another crucial moral to the story…

If I had instead bought an S&P 500 IRA fund with dividend reinvesting, that same $1150 would be worth about $75,000 in 2024.⁽²⁾  An astounding comparison!  That's enough to stop a charging T-Rex in its tracks.  Other stock index funds produced similar results.

Depressing as it is for this lost opportunity, at least that episode in life laid the groundwork for a valuable lesson.

As we shall see in the conversation below, stock index funds over the long-term hold high return potential, in general outperforming rare coins and many other investment types. However, certain rare coins can generate relatively good earnings as well. Scales image (modified) by Shutterstock.

My situation was/is very much representative of the average, middle-class individual.  That’s why my advice is not to depend on rare coins as the primary strategy for saving up a large nest egg.  There are preferential alternatives better suited for most smaller investors.  

Let's compare the performance of several well-known investment types to that of three rare coin indexes, covering a 24-year time period from January 2000 to January 2024:

In basketball, it’s easy to figure out who the best free throw shooter in the game is.  Just look at the percentages.

The financial world is not as clear cut.  Sure, the table above reports annualized returns for various investment types over the same 24-year period, but that alone does not make for a pure apples-to-apples comparison.  Additional context is called for…

• Stock Index funds
• Treasury Notes
• Corporate Bonds
• Certificate of Deposits
• Precious Metals
• Rare Coins

Stock Index funds

Let’s first examine the stock index funds.  As a group, they have very good returns over the 24-year period.  They're fairly volatile, with some really sour years, but with some utterly phenomenal intervals mixed in.

Many mutual funds and Exchange Traded Funds (ETFs) are structured to mirror the nature of these indexes, and can grow in tax-advantaged 401k and IRA plans.  An ETF is a publicly traded fund that concentrates on an index, business sector, or commodity.

Stock index funds charge commissions and management fees that slightly moderate the returns.

If you have a longer time horizon and can tolerate risk, stock index funds hold the highest potential on this list.  This is especially true if you have available a 401k with employer match: Take full advantage of that, making the maximum contribution allowable under the plan.  For many Americans, this is a sweet recipe for creating personal wealth.

The S&P 500 is one of the stock index funds that have performed very well over time. Stock index funds have a history of volatility. There have been some years when the bulls were stampeding wildly on Wall Street. By comparison, the famous “Running of the Bulls” in Pamplona, Spain looks like a cakewalk. Image by Shutterstock.

Treasury Notes

Treasury notes pay relatively small returns, but the earnings are exempt from state and local income taxes, so there’s that.  Investors who prefer low risk ventures flock to T-notes, as they are touted as the most secure investment in the world.

Investors can hold notes until maturity or sell them on the secondary market. Some investment firms have created funds featuring T-notes of diverse maturities, but charge fees that mitigate returns a bit.

Since its inception in 1789, the U.S. Treasury Department has been borrowing money from citizens to pay the nation’s debts. The first wings of the current Treasury building in Washington DC were completed in 1842. The Sept. 16, 1867 photo above shows the eighth and final column being raised into position during the construction of the North wing of the building. Image by Library of Congress.

Corporate Bonds

A corporate bond is a debt issued by a company to generate cash for its business operation.  Bond buyers are essentially lending money to the corporation and are paid interest periodically until the bond matures.  There is a secondary market where bonds are traded before their maturity dates.

Corporate bonds pay the highest rate of any bond type, but with a bit more risk.  Corporate bonds with AAA rating are judged as the least risky, but pay less interest than lower rated bonds.

For many investors, corporate bonds provide decent returns with acceptable risk.  Bond mutual funds and ETFs feature a blend of bonds to diversify holdings, but siphon off a small percentage of the profits through commissions and annual management fees.

Issuers of corporate bonds are rated by independent agencies for their creditworthiness, and this influences the interest percentages paid by the companies to those who buy their bonds. The highest quality bonds are rated AAA and present the least risk to investors and typically pay less interest than lower rated bonds. Bonds near the bottom of the credit ratings are termed high-yield bonds, but are often called junk bonds. Image by Shutterstock.

Certificate of Deposits

A Certificate of Deposit (CD) is a type of account offered by banks and credit unions that pay a specified interest rate on money you deposit with them for a fixed time period.  CD terms may be a few months, one year, two years, or even up to ten years.  The longer you commit your money to the lender, the higher APY (Annual Percentage Yield) earned.

Decades ago, when double-digit interest rates were the norm, CDs were attractive investments.  Today, lenders generally offer them, but pay microscopic rates compared to the 1970s and 1980s.  However, CDs are acceptable for many investors looking for somewhere to park their money safely.  Just do a little internet research on CDs, and you'll see plenty of CD advertisements, so yes, they're still around.

Money market accounts (MMA) are similar to CDs.  The main difference is that with MMAs, you can withdraw your money at any time without paying a penalty.  The tradeoff for this flexibility is that MMAs pay a lower interest rate.

Long ago, bank runs were a reality in the United States. This image from 1873 shows panicked customers rushing to withdraw their savings from a New York bank before it fails. To restore trust in the American banking system, the Federal Deposit Insurance Corporation (FDIC) was created by the 1933 Banking Act. The FDIC insures deposits up to $250K per ownership category. Parking money in CDs and MMAs is virtually risk free because they are backed by the FDIC. Images by Library of Congress and FDIC.

Precious Metals

Although gold and silver have been prized since the beginning of time, investing in them today is somewhat controversial.

On the “Pro” side, gold and silver help diversify an investor’s portfolio: Precious metals have often historically moved in the opposite direction of stocks and bonds.  Another point is that during inflationary times, many believe gold and silver will provide a financial shelter.  On top of that, precious metals are generally liquid with relatively small dealer margins.⁽³⁾

For “Cons”, a few financial experts say because the dollar hasn’t been backed by gold since 1971, investing in the yellow metal won’t help when a financial crisis hits or inflation heats up.  Silver is no better.  In the throes of a cataclysmic event, bartering will become the key to survival.⁽⁴⁾ Perhaps in the aftermath of a nuclear holocaust, a bottle of water could be worth more than a solid gold brick, I suppose.  

On balance, there appears to be more experts than not who say it’s okay to invest in precious metals, but no more than 10-15% of a portfolio should be committed to the shiny stuff.⁽⁵⁾

There are many common date collectible coins with 90% gold or silver content.  In less than spectacular grades, the bulk of their value is tied to their intrinsic metal.  A much smaller component of their value is derived from numismatic interest.

This 1897 Coronet half eagle with considerable wear will always be a collectible coin, but it certainly fits the description of a common date gold coin. For many collectors, “generic” is the label applied to a coin like this. When gold is around $1800/oz., about 75% of this coin’s overall retail value is due to its 90% gold composition. ⁽⁶⁾⁽⁷⁾ Images by Bargain_Hunters ONE.

Investors with an eye toward precious metal holdings are better off buying non-numismatic bullion-based coins, such as the American Eagles struck by the U.S. Mint.  These legal tender coins usually have lower buy-sell spreads than collectible coins and are generally easy to liquidate.

The American Eagles are technically coins, but the Mint program exists to appeal primarily to bullion investors (although a few of the American Eagles are “slabbed” as MS69 or MS70 grade by third-party services and carry some numismatic value).

In January 2000, a $50 American Gold Eagle coin containing one troy ounce of gold cost around $350.  In 24 years, that same coin rose in value to about $2100.  That’s an annualized appreciation rate of 7.86% (this computation would be less if selling at a wholesale price).

The American Gold Eagle has been issued by the U.S. Mint annually since 1986. They are available in four sizes, containing 1/10 oz., 1/4 oz., 1/2 oz., and 1 oz. of gold. They carry nominal face values of $5, $10, $25, and $50, respectively. The obverse is modeled after the $20 gold piece designed by Augustus St.-Gaudens and struck by the United States from 1907-33. A new reverse was unveiled in 2021, featuring a close up of an eagle’s head. Images by U.S. Mint .

A $1 American Silver Eagle containing one troy ounce of silver spanning the same time frame of 24 years had starting and ending values of $7.50 and $41.00 respectively, for an annualized return of 7.33% (this computation would be less if selling at a wholesale price).

The American Silver Eagle has been issued by the U.S. Mint annually since 1986. Only one size is available, containing one oz. of silver and carrying a nominal face value of $1. The obverse is modeled after the half dollar designed by Adolph A. Weinman and struck by the United States from 1916-47. A new reverse was unveiled in 2021, featuring an eagle carrying an oak branch as it prepares to land in a nest. Images by U.S. Mint .

At first blush those numbers are quite attractive, but are diminished if you live somewhere where sales tax must be charged when buying bullion.  If so, your cost to purchase precious metals is higher.  The cost of storage and insurance further cuts into your potential profit percentage.  Naturally, if wholesaled to a dealer at liquidation time, you’ll almost certainly sell for something less than the spot price.

None of the bullion-based coins can be purchased directly from the U.S. Mint.  They are distributed to the public through a network of dealers.⁽⁸⁾  For clarification, Proof coins and special mint-marked coins can be ordered from the Mint, but those are intended more for collectors, not bullion seekers.

In spite of the cost of buying, maintaining, and selling precious metals, if an individual investor decides to improve portfolio diversification, a small contingent of gold and silver bullion may be the answer.

One more thing about precious metals before moving on…

For investors desiring the benefits of owning precious metals without the cost and risk of taking physical possession, there are Exchange Traded Funds (ETFs).  As mentioned above, an ETF is a publicly traded fund that concentrates on an index, business sector, or commodity.  There are many ETFs that purchase precious metals on behalf of their shareholders.  Shares of ETFs are bought and sold just as any other stock.  With ETFs, investors can avoid the negatives of buying precious metals directly, but there are commissions and management fees to consider.

Rare Coins

Now we get to coins… how do we compare the performance of rare coins with that of more conventional investments?  There are several coin indexes that may help.

PCGS3000

Professional Coin Grading Service (PCGS) has developed numerous indexes involving approximately 3000 collectible United States coins, most of them in higher grades.  The indexes track performance as far back as 1970.

It’s somewhat of a mystery how these indexes are calculated, and which coins were chosen for specific indexes.  The coin group selected for their flagship index, the PCGS3000, is based on opinions of their in-house experts, drawn from the performance of their other indexes, so there are multiple unknowns here.

The units expressed on the vertical axis are dollars.

Interpolating from the PCGS3000 graph, this index moved higher at an annualized rate of just 1.11% over the 24-year period from January 2000 to January 2024.  There are many generic, common date coins on the list.  Although certainly collectible and a joy to own, generics possess little potential to advance significantly in value based solely on their numismatic DNA.  It’s really not surprising to see such a dreary performance.  Had it not been for the precious metal content of the gold and silver coins in the group, there would have been a loss.

The coins selected for the PCGS3000 Index are based on the judgement of in-house experts, who analyze secondary indexes developed by PCGS for specific coin groupings. Interpolating from the chart, this index inched higher from about $55,430 in January 2000 to $72,297 in January 2024. Over this 24-year period, that computes to an annualized appreciation of 1.11%. In the 1980s, the price of many generic coins in Uncirculated grades dramatically increased due to hype and speculation. That “bubble” popped in 1989-90 when Population Reports shed a more accurate light on actual coin date scarcity. Image by PCGS3000 Index.

PCGS Key Dates and Rarities Index

We can’t see the actual coins tracked in the PCGS Key Dates and Rarities Index, but judging by the name of the index, we assume venerable rarities like the 1877 Indian Head cent or the 1861-D Coronet half eagle make appearances there.

This index grew at an annualized rate of 4.85% over the same 24-year period from January 2000 to January 2024, as interpolated from the PCGS graph.  This is much better than the PCGS3000.  No doubt the index was buoyed by the presence of key date coins, with a lesser emphasis on generic coins.

Even though we do not know specifically the dates tracked, this index provides evidence that rare coins have the potential to generate returns on par with some conventional investment choices.

The PCGS Key Date and Rarities Index charts the cumulative performance all the way back to 1970 for a group of coins that have been eagerly sought by collectors for generations (although we do not know the specific coins tracked, we can logically assume there were many esteemed rarities monitored). Interpolating from the chart, this index rose from about $11,480 in January 2000 to $35,779 in January 2024. Over this 24-year period, that computes to an annualized appreciation of 4.85%. Image by PCGS Key Dates and Rarities Index.

Collectors Rare Coin Index

The webmaster of Rare Coins 101 (Dan Goevert) is the creator of the Collectors Rare Coin Index (CRCI). The United States coins selected for tracking in the index have been traditionally popular with collectors for generations and represent some of the finest coins in U.S. numismatics.

There are 100 coins tracked in the CRCI, ranging from Half Cents to Double Eagles. Most of the tracked coins also appear in the Key Date List of Recommendations.

The goal of the CRCI is to estimate the direction and strength of the U.S. rare coin market and is updated monthly. Index movements are based on the averaged percent changes in dollar values for all 100 coins tracked.

Retail prices, needed for the percent change computations, were researched for the 100 coins back to January 1990. Thus, the CRCI baseline was set for January 1990 and assigned a score of 100.00 (indicating 100.00% of starting value).

Because the CRCI is driven by percentage movements (not dollars), we must extract retail pricing from the index's body of data to facilitate direct comparisons to all the computations above. For that reason, an associated chart tracking the cumulative retail value of the CRCI 100 coins was also developed.

Thank goodness for spreadsheets and charting software!

In the interests of consistency, the same 24-year time horizon, from January 2000 to January 2024, is highlighted.

In terms of dollars, the cumulative value of the 100 coins at the start of the 24-year period was around $850,000. That number ballooned to $4,683,110 by January 2024, translating to a compounded annualized growth rate of 7.37%.

Pretty darn respectable, right?

As a by-product of the Collectors Rare Coin Index, we also chart the cumulative retail value of all 100 coins tracked in the Index. For the baseline month of January 1990, the coin group totaled just over $580K in estimated retail value. Ten years later, the cumulative value rose to $850K. By January 2024, that number rose to $4.683M. For the 24-years from 2000 to 2024, this gain computes to an annualized compounded growth rate of 7.37% Image from Cumulative Value of all 100 Coins Tracked in Collectors Rare Coin Index.

Yes, but unlike stocks, bonds, and many other investments, rare coin buyers must pay sales tax in many states and localities, so there’s an immediate hit to the bottom line because of the additional cost up front.

When the time arrives to sell, many collectors liquidate their coins through a dealer, and may settle for 20 to 40% less than retail. More on this in the Coin Investing in 2024 chapter. Shipping fees, if applicable, eat away at the margin too as do storage and insurance costs.

Now that 7.37% doesn’t look quite so good. When taking the front, middle, and back-end losses into consideration, a collector holding a “portfolio” modeled after the CRCI would have realized an annualized return of something closer to the 5.00% to 6.00% range.

Still, that’s a fairly respectable percentage, and is an indication that carefully chosen rare coins can indeed generate decent margins.

The 1909-O Indian Head $5 half eagle is one of the 100 dates tracked in the Collectors Rare Coin Index. In January 1990, an EF-40 example retailed for around $875. By January 2024 the same date was selling in the $8500 range, advancing at an annual clip of 6.92% over the 34-year period. Although there have been a few hiccups over time, this key date is undergirded by solid numismatic fundamentals and will consistently rise in value over the long haul and is one of the recommendations in the Key Date Coin List. Images by Stack's Bowers Galleries.

Obviously, there are many other types of investments we haven’t touched upon here.  Real estate, cryptocurrencies, munis, short selling… the possibilities are seemingly endless (I was gonna mention pork belly futures, but that mystifying investment came to an end in 2011).

A competent financial adviser can help sort out the myriad of options and demonstrate the snowballing effect of smart long-term investing.

Here is the Rare Coins 101 Axiom from this chapter...

However, this is not to say rare coins should never be part of an investment program.  

Investors who have already put into action a savings plan appropriately structured for their personal situation may be wise to consider adding a few rare coins to their holdings.

We know there are some traditionally popular U.S. coins that increase in value at a pace to justify their purchase as an investment.  The 1909-O Indian Head half eagle highlighted a few paragraphs above is one example.  The recommendations in the Key Date Coin List are a good place to find more of those timeless rarities meeting this qualification.

Certain rare coins absolutely can outshine many bond funds or other types of conventional investments.  Investors ready to move beyond their core strategies in search of higher potential returns and improved diversification should have a look at rare coins.  On top of that, it’s much more interesting and enjoyable to own an artifact of history rather than a boring CD!

Now that we know it’s okay under some circumstances to consider rare, numismatically significant coins as in investment, in the next few chapters let’s review a few important things to remember before spending gobs of money on coins...

Quick Links to Other "Coin Investing" Chapters...

The next chapter in this section is Collect First, Invest Second.

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