Investing in coins

[david3142]

Another thread mentioned Barbers/Walkers in low grade vs. ATB Proof quarters as an investment. Usually the advice on this forum is to collect what you like, but I was wondering if someone were to specifically target a near-term profit what advice would everyone give.

 

This is not specific advice to me. I have been collecting a long time, and although I like to get good deals and have my coins appreciate, my primary concern is buying nice Morgans/toned coins for my collection.

 

So, forum members, if you have $100,000 to spend today, what coins/set of coins do you think would generate the greatest return in 3-5 years? Assume you are not able to upgrade coins to better holders.

 

 

[coinman_23885]

Investing in coins? When you use the term investment, I assume that your goal is to maximize your return on each dollar. If that is the case, then there are plenty of other securities with lower commission rates, higher rates of return, and greater liquidity. Coins and other luxury goods are also taxed a rate higher than the normal capital gains rate.

 

But to actually answer your questions, I would say that coins with some phenomenal quality that sets it apart from the rest of the coin herd tend to do the best. This is often from exceptional eye appeal or outstanding attributes that make it more desirable (and scarce) than generic counterparts.

[RWB]

None.

"....better holders" ? What are they? Do they hold the coin tighter or have little lights in them?

[cpm9ball]

None.

"....better holders" ? What are they? Do they hold the coin tighter or have little lights in them?

 

Fingers without prints to protect the coins.

 

Chris

[david3142]

Yes, assume all that is understood. I'm just asking which segment of the market do people expect to appreciate the most in the next few years.

 

And by not "upgrading to better holders" I mean let's assume we are not playing the crack-out/resubmit game.

[AHFreak]

Better holders??? I want better holders...

 

If this were a serious question that applied to me, I would study/examine the coin market as a whole, find areas that are weak right now and start there (not that I know the coin market but I know the premiums on classic gold are as low as they have been for a while... I would also look for areas where the typical collector is mostly trying to sell, or has the least amount of interest... I would want to buy there.

[Walkerfan]

I can't answer which segment or series will improve the most but I can say this:

 

-buy coins that are well-struck

-buy coins that are original with good luster

-buy coins that have good surface preservation (lack of lines and abrasions)

-buy the keys & semi keys (often the low-mintage coins with few MS survivors).

-buy the best quality and highest grade that you can afford (within reason).

-don't buy 'ga-ga' grades MS 68, 69 etc.

-look for bargains when you can get them.

-hold longer term.

 

[david3142]

Thanks guys - that's more what I meant, but I'm surprised that people don't have pet coins or ideas (series or date/grade combos) they think will go up in value. I'd say looking for well-struck buffalo nickels or full-hand Walkers could be possible areas that might eventually benefit (especially if they were ever to receive special designation). I'd also say better-date PL Morgans in the $1K-10K range (and probably PL coins in other series). If gold goes back up, I think premiums on MS65/66 Saints will go up even more. Not long ago, these were $3000 and $4000 coins.

 

I suppose if people really had strong ideas they wouldn't share them because they wouldn't want competition. This is in contrast to the investing world, where people get long and loud to boost shares in companies they already own.

[wdrob]

 

Coins and other luxury goods are also taxed a rate higher than the normal capital gains rate.

 

Kenny, you wouldn't happen to have a reference link for that would you?

 

 

[Colorado68]

If I had a $100k today like the OP asks to invest, I would buy Morgan CC's, early dollars, barber halfs, walkers and some ASE's. In that order.

 

[jom]

Coins and other luxury goods are also taxed a rate higher than the normal capital gains rate.

 

Kenny, you wouldn't happen to have a reference link for that would you?

 

 

I don't have link but Kenny is correct. Depending on the asset there are different capital gains rates applied and collectibles are the highest at 28%. If memory serves the next highest is cap gains due to depreciation (real estate) at 25% then comes the 15% applied to securities. I think there is one at 10% for securities for people with less income....and so on.

 

As to investing in coins: I'd avoid it for the reasons mentioned above. I also don't have any kind of guess (that's right most predictions are just guesses) as to which section of the market might go up. It's really just a guess on the way humans are going to behave. That's all a market is after all...what people are going to do with their money. In fact, that could be said for the economy as well...it's all behavioral. And I don't think many people, if any, have a clue as to how to predict that in the short-term, IMO.

 

jom

 

 

[KMAG100]

None.

"....better holders" ? What are they? Do they hold the coin tighter or have little lights in them?

 

That's too funny, absolutely best response........Got to admit love your sense of humor.....

[coinman_23885]

Coins and other luxury goods are also taxed a rate higher than the normal capital gains rate.

 

Kenny, you wouldn't happen to have a reference link for that would you?

 

 

26 U.S.C. 1(h)(4) specifies a tax rate of 28 percent for collectibles held more than one year. Other sections of the same statute establish the tax brackets for wage income and for other capital gains provisions as well.

 

http://www.law.cornell.edu/uscode/text/26/1

 

[wdrob]

 

I found it on the IRS website and was responding right before my power went out, again.

 

I have to say that the more and more one reads the various areas of the tax code and how we are double and triple taxed on everything, it is surprising that we actually sit back and take this. It is no surprise why so many either avoid paying taxes or find ways to pay less than what the IRS thinks we should.

 

I mean, come on - paying capital gains taxes on a sofa that you might sell through the classifieds?

 

 

[KMAG100]

But in all seriousness David, you want to know where the market is, stay on this board for the next three to five years, read all the posts you can, see what people are talking about.... Then you have done your DD and you will get your own ideas of where the market is and going. Like Wall Street when you come in new and ask where the market is there is always a seller willing to tell you, however it may not be where the market is or will it be when you want to sell. Walkerfan gives the best nuggets of advice I'd follow, at least its the cool aide I'm drinking......Good luck.

[coinman_23885]

I found it on the IRS website and was responding right before my power went out, again.

 

I have to say that the more and more one reads the various areas of the tax code and how we are double and triple taxed on everything, it is surprising that we actually sit back and take this. It is no surprise why so many either avoid paying taxes or find ways to pay less than what the IRS thinks we should.

 

I mean, come on - paying capital gains taxes on a sofa that you might sell through the classifieds?

 

 

You only pay on the amount of profit you make. If you pay $1000 for a sofa and sell it for $1100, you would only theoretically be taxed on the $100. Also, losses can be written off. On a side note, unless we are talking about a rare antique, depreciation is usually the rule not the exception.

[World Colonial]

For return on "investment", your best bet is probably to cherry pick modern coinage from bank rolls and pocket change. I don't pretend to know which US coins are "undervalued" today and will do best but I certainly don't believe that any of them are cheap, only some relatively so.

 

Morgans and Saints are "investment" coins and might do well if gold and silver prices rise. I think these metals will short term because both are "oversold", the "paper" versions anyway. The physical silver market certainly shows no sign of pessimism from what I know.

 

The other two examples you gave, I wouldn't buy either of them. I can't think of any reason why most (if any) low grade Walkers or Barbers will be profitable. Longer term especially, I expect most (if not all) low grade US coinage to lose value from current levels, at least when measured in constand value. ATB proof quarters, don't know what these sell for either but they are extremely common, I suspect that the actual collector base is fewer or far fewer than the supply and don't see any reason why they will do better than recent US Mint releases generally either, most of which I understand are losers.

 

As for all other coins, I think you are going to have a hard time finding one or more winning series or segments without making it a full-time job or pure luck. How many series are there? Over 100 depending upon definition? Who has time to research that and what reason is there to believe it will be more profitable for more than a low number than the money they can make from their job?

[Nutmeg Coin]

Type gold especially easy to value $20s are trading at historical lows. Gold is likely to continue the roller coaster ride so in the next 5 years chances are you could reap a big profit.

 

The central banks have been buying gold, maybe they know something: http://www.lewrockwell.com/2015/02/gary-north/central-banks-bought-gold-in-2014/

 

Most certified coins take too much research and are hard to get at value prices if they are going to be easy to sell later at a profit due to rarity/grade.

[asdfgh]

I believe that the second level grades of coins are your best bet in the long run.

What I mean by this is the following. Go on Ebay and set your list to PCGS,NGC.

for a particular category. Then see how many coins are in the top 2 MS grades for a date.

You will find that there are 1 or 2 MS68's with prices like $800 and then 20 or so

MS67's with prices like $25-$75. Then go to the NGC coin census. You will see that

there are only 20 of the MS68 and maybe 200 of the MS67. Buy the MS67, its the best bang for

the buck. The MS68 would be nice but it has already gone thru the roof. The MS67's will

eventually go up as more collectors try to make high grade sets.

This is a long term strategy. I would also look at the years 1930 thru 1960. The number of

higher grade coins do not change all that much as compared to 1960 thru present where

people are still grading alot of coins.

[TonerGuy]

I cant provide an answer but I will let you know about an interesting conversation I overhead at a major show as I was sitting at a dealer's table...

 

A 20 something guy walked up and wanted to show his coins to the dealer for possible purchase. I said go ahead even though I and the dealer were in the middle of a transaction and conversation...

 

While sitting there it was interesting to hear how this particular person investigated which coins to purchase. He had studied the entire market and came up with an algorithm as to what particular coins were going to increase the most in value in a period of 3-5 years. If I can remember correctly he compared the wholesale and retail prices of several different coins, he studied trends as well as what he called a "heat index" of popular coins that were discussed on forums such as this one.

 

He then decided on Proof Shield Nickels and invested heavily.

 

Prior to coins he stated he was a stock analyst and used basically the same approach to coins...

 

I have no idea how he came up with proof Shield Nickels but if you look here there are a lot of green arrows...

 

http://www.ngccoin.com/price-guide/us/shield-five-cents-pscid-22-desig-pf

 

So I guess he did alright... But I would think that unless you have some sort of magical mathematical computation ability investing in coins is hit and miss, mostly miss though unless you are going to buy and hold for decades.

 

[Mr.Mcknowitall]

Coins and other luxury goods are also taxed a rate higher than the normal capital gains rate.

 

Kenny, you wouldn't happen to have a reference link for that would you?

 

 

I don't have link but Kenny is correct. Depending on the asset there are different capital gains rates applied and collectibles are the highest at 28%. If memory serves the next highest is cap gains due to depreciation (real estate) at 25% then comes the 15% applied to securities. I think there is one at 10% for securities for people with less income....and so on.

 

As to investing in coins: I'd avoid it for the reasons mentioned above. I also don't have any kind of guess (that's right most predictions are just guesses) as to which section of the market might go up. It's really just a guess on the way humans are going to behave. That's all a market is after all...what people are going to do with their money. In fact, that could be said for the economy as well...it's all behavioral. And I don't think many people, if any, have a clue as to how to predict that in the short-term, IMO.

 

jom

 

 

Doesn't this only apply if listed in/registered with an Investment portfolio?

 

If I bought a 1964 1/2 Mustang 2 +2 Fastback, drive it off and on since I bought it back in 1965 and decide to sell it/give it away, etc., is it a collectible? Is it a planned investment strategy? I am using a Mustang as an example. It can be an R2D2 or 3CPO. The point is, when is it considered an Investment under the Tax scenario mentioned, and what triggers the scenario?

[World Colonial]

Type gold especially easy to value $20s are trading at historical lows. Gold is likely to continue the roller coaster ride so in the next 5 years chances are you could reap a big profit.

 

The central banks have been buying gold, maybe they know something: http://www.lewrockwell.com/2015/02/gary-north/central-banks-bought-gold-in-2014/

 

Most certified coins take too much research and are hard to get at value prices if they are going to be easy to sell later at a profit due to rarity/grade.

 

Central banks are a much better contrary indicator. Some at least (such as the BOE and SNB) were selling at the 1999/2001 lows. I consider them totally clueless.

 

I agree with your comments on type gold.

[World Colonial]

You are presenting a different scenario. The question you seem to be asking is whether the item is treated as a hobby or a business which only matters to my knowledge for claiming losses. The prior posts describe the tax treatment of gains. There are rules in the tax law covering your question but I don't remember the specifics since my information is dated anyway.

[World Colonial]

This "heat index" seems to be including collector sentiment since it at least partly relies on chat board comments. Not sure how this can be used in model.

 

The rest of it I would guess is a "flow of funds" since you mentioned he was a stock analyst. It is used in technical analysis.

[World Colonial]

I believe that the second level grades of coins are your best bet in the long run.

What I mean by this is the following. Go on Ebay and set your list to PCGS,NGC.

for a particular category. Then see how many coins are in the top 2 MS grades for a date.

You will find that there are 1 or 2 MS68's with prices like $800 and then 20 or so

MS67's with prices like $25-$75. Then go to the NGC coin census. You will see that

there are only 20 of the MS68 and maybe 200 of the MS67. Buy the MS67, its the best bang for

the buck. The MS68 would be nice but it has already gone thru the roof. The MS67's will

eventually go up as more collectors try to make high grade sets.

This is a long term strategy. I would also look at the years 1930 thru 1960. The number of

higher grade coins do not change all that much as compared to 1960 thru present where

people are still grading alot of coins.

 

I presume you are generalizing but if your comments are intended to apply to the "undergrade" or those below the condition census grade, I think these coins are frequently a lot more common that the current census indicates. This primarily applies to those graded MS-66. A prior thread covered silver Washington quarters and in it, I explained that its entirely likely that at least twice if not a lot more actually exist versus the counts today because many of these coins were saved in large numbers. And yes, I believe this applies to coins dated from 1930-1960.

 

I also don't believe that the demand for most of these coins is going to increase substantially. These series are already the most widely collected and I see no reason to believe that they are now going to experience a substantial increase later, especially measured by the price level. I don't believe these coins are particularly cheap today given their availability and if they increase a lot more, many collectors will almost certainly prefer to buy something else.

[Afterword]

In terms of collecting, it is based on the honor system. How would the IRS know you purchased a coin for $100 and then later sold it for $330?

[wdrob]

The question you seem to be asking is whether the item is treated as a hobby or a business which only matters to my knowledge for claiming losses.

 

I posted this in another thread previously but I will post it again as it relates directly to coin collecting as a hobby or a business.

 

IRS Publication 525

 

Activity not for profit

 

You must include on your return income from an activity from which you do not expect to make a profit. An example of this type of activity is a hobby or a farm you operate mostly for recreation and pleasure. Enter this income on Form 1040, line 21. Deductions for expenses related to the activity are limited. They cannot total more than the income you report and can be taken only if you itemize deductions on Schedule A (Form 1040). See Not-for-Profit Activities in chapter 1 of Publication 535 for information on whether an activity is considered carried on for a profit.

 

IRS Publication 535

 

Not-for-Profit Activities

 

If you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. Activities you do as a hobby, or mainly for sport or recreation, are often not entered into for profit.

 

The limit on not-for-profit losses applies to individuals, partnerships, estates, trusts, and S corporations. It does not apply to corporations other than S corporations.

 

In determining whether you are carrying on an activity for profit, several factors are taken into account. No one factor alone is decisive. Among the factors to consider are whether:

 

• You carry on the activity in a businesslike manner,
   
  
• The time and effort you put into the activity indicate you intend to make it profitable,
   
  
• You depend on the income for your livelihood,
   
  
• Your losses are due to circumstances beyond your control (or are normal in the start-up phase of your type of business),
   
  
• You change your methods of operation in an attempt to improve profitability,
   
  
• You (or your advisors) have the knowledge needed to carry on the activity as a successful business,
   
  
• You were successful in making a profit in similar activities in the past,
   
  
• The activity makes a profit in some years, and you can expect to make a future profit from the appreciation of the assets used in the activity.
   
  

 

 

 

If it is a hobby and a not for profit activity it is treated similarly to gambling losses. You can claim your losses in a hobby to offset any gains made but you can not use any of the excess losses as deductions to claim against regular income.

 

 

[Mr.Mcknowitall]

You are presenting a different scenario. The question you seem to be asking is whether the item is treated as a hobby or a business which only matters to my knowledge for claiming losses. The prior posts describe the tax treatment of gains. There are rules in the tax law covering your question but I don't remember the specifics since my information is dated anyway.

 

No, not at all. The gentleman states he has been collecting for some time. He is now seeking info on investing in future hot spots within the numismatic world. he is not referring to those coins he has already.

 

The scenario presented is no different at all from seeking the same type of information from an investment house/Broker/family member.

 

I am not asking a question, as much as I am wondering what the scenario really is and how it would be treated. I am cognizant of the Hobby/business Rule.

 

The gentleman is asking a straightforward investment question, (ignoring his previous numismatic Holdings) and answers should treat the question as an investment. But, what type, and what vehicle will the investment be? Without this info, speculation is not any value. It is not necessarily a Capitol Gains issue. For instance, if the investment is by a Trust, or in the old days, a Clifford Trust, which reverts.

 

The Mustang/C3PO/R2D2 scenario I mentioned above is not a Gains issue, is not an investment issue and is not a hobby (including loss) issue. if I sold, I sold. I owe nothing to any government entity. In fact, I would probably have, and have had, a deduction, for all the years I own it.

 

 

[wdrob]

In terms of collecting, it is based on the honor system. How would the IRS know you purchased a coin for $100 and then later sold it for $330?

 

If you don't have complete and correlating records of all transactions then you might very well be in a pickle.

 

The IRS works of what they call Presumption of Profit.

 

 

[Afterword]

In terms of collecting, it is based on the honor system. How would the IRS know you purchased a coin for $100 and then later sold it for $330?

 

If you don't have complete and correlating records of all transactions then you might very well be in a pickle.

 

The IRS works of what they call Presumption of Profit.

 

 

 

 

How so? How would they know the transactions even occurred, unless you volunteered the information?