Know both sides of coin investing - risks and benefits

Is today a good time to invest in rare U.S. coins? If so, how might I get started? And what should I worry about before I invest?

- R.H.L., Chicago


The market for rare, popular and well-preserved U.S. coins has been quite strong since the late 1990s.

The prices paid in auctions vary greatly from coin to coin and year to year. But with spot gold, silver and copper prices heading upward on global markets in recent months, rare coins seem likely to rise with the prevailing tide in global commodity metals, several observers said.


Despite the potential rewards in coin speculating, there are obvious risks. And these risks include the wholesale-to-retail price spread, plus any unexpected turns in the market for a given coin or collection of coins.

Beginners should first buy, or borrow, the latest edition of The Official Red Book: A Guide Book of United States Coins by R.S. Yeoman (St. Martin's Press).

Those with a yen for foreign currency might also want to pick up a copy of the 2,034-page Standard Catalog of World Coins by Chester Krause (Krause Publications). The catalog also has special editions for the 18th and 19th centuries, and for centuries that predated the Age of Enlightenment.

With a price guide in hand, you can look for coins that fit within your budget. Price guides also illustrate, in easy-to-see numbers, how quickly a coin's value can rise or fall with its condition.

For example, listed prices for the 1909S VDB Lincoln penny range from $600 to $5,000, depending on condition. Worn and battered copies of the 1909S VDB would probably sell at prices below $600.

"A pricing guide cannot measure absolute value. But it is useful for measuring the relative scarcity, or potential value, of a rare coin," said Harold Kritzman, a professional numismatist, appraiser and owner of Olde Towne Coin Co., a coin shop in Newington, Conn.

Would-be investors in rare coins should also understand that, unless they're lucky, they typically buy at retail and sell at wholesale.

This means investors take a licking on both sides of a trade. They often pay a 20 percent markup when they buy a coin; they pay $1,200 for a coin worth $1,000. And they often pay a 20 percent commission when they sell a coin; they receive $800 for a coin priced at $1,000.


This wholesale-retail price spread adds up. If you pay $1,200 for a $1,000 coin, and if you can only sell that $1,000 coin for $800, then you're down 33 percent ($400 off the retail price of $1,200) in a matter of days. (This hypothetical calculation excludes sales tax, which you might also have to pay if you buy a rare coin through a registered dealer.)

"Coins are not very liquid investments. And they're not something you want to sell to raise cash in an emergency. You need time and patience to get a reasonable price for a specific coin, or collection of coins," said David Harper, editor of Numismatic News, a weekly newspaper about coin collecting based in Iola, Wis.

There are also holding costs associated with owning rare coins. They don't pay interest or dividends. They must be stored in protective packets or cases. They should not be frequently handled, lest you - the proud and curious owner - scratch or rub away some of that coin's value, Harper said.

The upshot: Despite the risks of rare coin investing, there are some joys.

"You get the privilege of holding a precious historical artifact," Kritzman said. And, if you're lucky, that artifact can appreciate in value - just as paintings by Rembrandt or Van Gogh often show consistent decade-to-decade increases in price, Kritzman said.

Just be wary. Markets for collectibles are extremely fickle. So if you're going to spend thousands of dollars on a coin - or, for that matter, a baseball card - it helps if you truly love, and don't mind holding for a few years, what you're about to buy, Harper said.


I own the Fidelity Contrafund. The expense ratio is 1.03 percent. What does that mean?

- J.D.S., Northbrook, Ill.

An expense ratio represents all expenses - management, marketing, research and other - that go into holding a mutual fund.

With a 1.03 percent expense ratio, you pay $103 a year for every $10,000 you have invested in the fund.

I have been regularly investing in my 401(k) plan at work. When I retire, how will I, for tax purposes, be able to calculate the basis of all the shares in stock and bond mutual funds I have purchased over the years?

- R.M., Chicago


In all but a few exceptions, there is no "basis" to consider when withdrawing money from a 401(k) plan, said Seymour Goldberg, a tax attorney based in Garden City, N.Y.

Withdrawals are taxed as regular income, no matter how much your 401(k) investments have risen or declined in value over the years.

How can this be? With most 401(k) plans, you get a break up front. The income from your paycheck diverted to your 401(k) plan is not immediately taxed. In exchange for this right to defer taxes on your current income - and current appreciation on investments in your 401(k) plan - Uncle Sam takes his cut in later years, after you withdraw money from your 401(k), Goldberg said.

Matthew Lubanko is a financial columnist for The Hartford Courant, a Tribune Publishing newspaper. Write to him in care of Your Money, Room 400, 435 N. Michigan Ave., Chicago, Ill., 60611 or via e-mail at yourmoneytrib-