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A significant portion of Gene Sherman's wealth comes from old money, some that even dates back to the Roman era.Skip to next paragraph
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That's the advantage of coin collecting. You can pursue a hobby and get a start on building a fortune.
These days, that fortune is sparkling brightly.
With general shakiness in the economy, some investors are bullish on coins because they are tangible assets that are not as susceptible to the same market pressures as stocks and bonds. The value of precious metals is up, an indication that the value of coins is on the rise. The CU3000 Rare Coin Index, meanwhile, has handily outperformed the stock market since the peak of the dotcom bubble five years ago.
The index, which measures the value of the 3,000 most actively traded coins, has increased about 20 percent over the past five years, while the Dow Jones Industrial Average has dropped more than 5 percent and the Standard & Poor's 500 index has declined at least 20 percent during the same period.
So is it time to dust off that old penny collection and get serious?
Opinions are divided.
"My wife feels this isn't the wisest investment," says Dr. Sherman, who lives in Palos Verdes, Calif., an exclusive seaside community south of Los Angeles. "But every coin in my collection is increasing in value, and I think coins are a hedge against inflation."
Even though more than 15 percent of his assets are tied up in coins, Sherman invests in coins for love of their beauty and history, not as a way to make money. Since there is no scientific method when it comes to determining the value of a coin, experts note, would-be collectors need to know what they're doing.
"To be a solid coin investor you have to bone up on the risks to avoid the swindlers," says Scott Travers, a New York City coin dealer and author of "How to Make Money in Coins Right Now."
There are three basic risks that every coin buyer needs to know, he says:
• Buy risk - The possibility of buying a coin for $1,000 when its actual value is significantly less.
• Marketplace risk - The possibility that your $1,000 coin loses value in a declining market.
• Sale risk - The potential of selling your $1,000 coin to an unscrupulous buyer for significantly less.
The coin must also be scrutinized for its level of preservation. The Professional Coin Grading Service, a subsidiary of Collectors Universe, determines this by assigning a number that ranges between 1 and 70, 1 being well-worn and 70 in a state of perfection. The Numismatic Guaranty Corporation of America is another popular grading service.
Mr. Travers says coins ranging between 63 and 67 generate the most controversy because they are in the greatest demand, while the grading process is highly subjective.
The value of a coin is also determined by its scarcity and composition. The latter characteristic is one motive for the United States Mint to continue to tout its 22-karat American Eagle gold bullion program as an investment for consumers.
"And because we've seen the value of gold rising above $430 an ounce in the last two years, that bodes well for the rare-coin marketplace as well," says Travers, who recommends that people invest no more than 15 percent of their total assets in coins. "Yes, they can be very volatile. But we've been going through a bull market for several years and the economic justification [for coins] is strong precious metal prices."