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.
Wealth Preservation
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.”
Because of their size, rare coins also give owners the ability to transport large amounts of wealth with ease anywhere in the world. Rare coins are also duty free both in and out of the U.S. and exempt from Foreign Account Tax Compliance Act (FATCA) reporting.
Who Is Qualified To Invest?
The most important consideration in determining whether a U.S. rare coin strategy is right for a client is, as with many other investments, the client’s investment goals. Clients looking for long-term wealth preservation, multigenerational wealth transfer and capital appreciation solutions are ideal candidates. For example, clients with short-term liquidity needs or concerns are not a fit. Nor are clients requiring a coupon or cash flow. To optimize this investment strategy, investors need to have sufficient holding power. U.S. rare coins should be worthy of consideration for clients looking for low-maintenance investments characterized by low risk, low volatility and non-correlation.
Enhanced Transparency And Liquidity
Expert certification of U.S. rare coins is easy to access, affordable and comes with a guarantee of authenticity. In addition to rarity, one of the fundamental factors in determining the value of rare coins is the physical condition or grade of the coin. Professional Coin Grading Service and Numismatic Guaranty Corporation are two grading firms that offer guarantees of both grade and authenticity. This is a sharp contrast to the art market, where concerns about authenticity and forgery, are on the rise. Moreover, there is a network of thousands of rare coin dealers willing to provide bids on coins. Price guides are plentiful and published independently. Online and physical auctions are common. This has all contributed to a more evolved, liquid and transparent U.S. rare coin market.
Storage And Insurance
Unlike Gold ETFs and more traditional securities, many U.S. rare coin investment strategies require that investors take physical possession of hard, tangible, assets—the rare coins themselves. However, investors can avoid the safekeeping costs and logistical challenges traditionally associated with purchasing rare coins. As a service to clients, a rare coin asset manager may offer storage and insurance at no charge as part of the ongoing commitment to the client relationship.
Choosing An Asset Management Firm
Arguably the most important decision an investor can make before embarking on U.S. rare coin investing is choosing the right rare coin advisory firm and asset manager. Basic requisites for a firm are its high-end U.S. rare coin market knowledge, experience, access to current information and relationships with key market participants. There are also intangible factors that contribute to differentiating the best from the rest. Given the long-term nature of the asset and investment profile, investors should seek a rare coin firm having a long-term relationship orientation and a strong human component.
Structuring and funding a client’s portfolio is the beginning of the relationship, as a rare coin asset manager will serve as a family’s trusted advisor in the U.S. coin market. This ongoing relationship dynamic enables investors to retain complete control of their portfolio of assets, while their advisor brings them profitable selling opportunities as they present themselves in the marketplace. When heirs inherit a rare coin portfolio, they will not be alone in attempting to understand and value their assets. A good rare coin asset manager will advise heirs of their options and work with them to ensure that their decisions are executed to their satisfaction.
Conclusion
An alternative investment strategy that includes U.S. rare coins provides investors with a cautious, conservative, non-correlated, strategic diversification option for their portfolios, especially significant for those investors challenged with sourcing effective wealth preservation solutions. The U.S. rare coin market has evolved, providing today’s investors with enhanced transparency, liquidity and guarantees of authenticity. Moreover, as an uncorrelated wealth preservation tool, U.S. rare coins can mitigate risk from severe wealth-destroying market events.
Michael Contursi is president of RCW Financial, a U.S. rare coin asset management firm in Irvine, Calif. He can be reached at [email protected] or 949-679-1222, ext 217.