Preserving wealth for future generations has always been a challenging endeavor for the affluent. A seemingly never-ending succession of negative global events has made the market more uncertain and wealth preservation much more challenging. Consequently, effective wealth preservation solutions are in high demand.
There is, however, an interesting alternative investment that wealthy investors may be overlooking: the U.S. rare coin market.
Once the exclusive province of numismatists and well-heeled collectors, elite coins are experiencing a transformative evolution and emerging as a bona fide alternative asset class, with the quest for diversity helping drive interest in the sector.
It’s important to first clearly define the U.S. rare coin market. These are not coins you will find on late-night TV commercials, which typically sell generic gold or silver coins. Moreover, U.S. rare coins have nothing to do with gold or silver bullion, bars or precious metals. And they have no connection to ETFs. Certified U.S. rare coins are tangible, elite assets that provide investors with the opportunity to own a physical piece of American history with enduring value. They occupy the intersection of art, rarity and historical significance as U.S. rare coins memorialize the birth of democracy and capitalism. They are highly prized collectables and part of a robust, dynamic and orderly, multibillion-dollar market.
U.S. rare coins are not a new strategic portfolio option for investors. Wealthy families have used elite collectibles and irreplaceable artifacts to protect and preserve family wealth for many generations. The recent emergence of U.S. rare coins as an alternative asset class illustrates the validity of their role in a historical wealth preservation strategy that has been with us for centuries. U.S. rare coins are elite assets that allow investors to benefit from the market dynamics of scarcity, exclusivity and robust demand. Investor downside exposure is mitigated by the fact they own hard, tangible assets possessing non-correlated performance characteristics.
Scarcity and robust demand are among the drivers of this asset class. No one, for example, can go back to 1907 and strike more ultra-high-relief $20 Saint-Gaudens. Furthermore, the market’s wealthy collectors and investors have long demonstrated a passion for the rare coins they own. They are not prone to selling during times of economic crisis or market turbulence as are panic-stricken equity stock and bond investors. Consequently, the U.S. rare coin market is known for having a stable, non-correlated performance profile. That makes the market an effective alternative asset option for wealth preservation, intergenerational wealth transfer and capital appreciation strategies.
Two world-record coin sales conducted during and shortly after the Great Recession demonstrated the resilience of the market: The first U.S. dollar coin, minted in 1794, sold for $7.85 million in 2010, then again in 2013 for $10 million. The Brasher Doubloon, the first gold coin made by George Washington’s neighbor on Cherry Street, sold for $7.4 million in 2012.
Estate And Tax Benefits
U.S. rare coins are tax efficient and provide certain advantages over other investments. For example, capital gains associated with the sale of U.S. rare coins can be deferred indefinitely by utilizing the “like-kind” exchange under Section 1031 of the Internal Revenue Code. Rare coins also benefit from a step-up in basis upon the owner’s death. Combining these benefits allows investors to potentially eliminate their capital gains exposure. Unlike stocks, bonds and commodities that have a daily price, the value of exclusive rarities is subjective. This provides great flexibility for estate planning and philanthropic planning.
Privacy and Portability
Now more than ever, people value their privacy. But in today’s intrusive world, the mere concept of privacy seems out of reach. Rare coin investors have been able to maintain a level of privacy by owning tangible assets that fall outside of traditional reporting requirements. U.S. rare coins are a completely self-regulated industry; all transactions are completely private and do not require K-1, 1099 or any other government reporting. This makes U.S. rare coins a good fit for investors who like to “play things close to the vest.”