Updated: December 19, 2012 11:10AM
Dear Mr. Berko: I am 46 and hope to retire in 20 years. I want to invest about $50,000 in gold or silver or gold bullion or coins as an inflation hedge. Then, 21 years from now, when I’m 67, l’ll retire and then sell the gold or silver and invest the profits in stocks and bonds that pay good income. But how do I avoid the 15 to 40 percent markups charged by companies such as American Gold, Goldline, AAA Gold, Rosland Capital and GoldMax?
— GR, Rochester, Minn.
Dear GR: Sorry to topple your apple cart, but contrary to the pronouncements of those sneaky organizations, which pollute the airwaves and print media with disingenuous advertising, gold and silver are not good hedges against inflation. Gold was selling for $34 an ounce, and silver was trading at 90 cents an ounce in 1935. Gold’s rise to $1,800 an ounce and silver’s rise to $33 an ounce 77 years later make for a compounded annual return of less than 5.5 percent. Great suffering succotash! It doesn’t take an Einstein to figure out that in the same time frame, the Standard & Poor’s 500 index and the Dow Jones industrial average produced better results, compounded annual returns of 8.4 percent. Even beetleheads know that 20th-century paintings by Warhol, de Kooning, Pollack, Kandinsky, Malevich and Rothko have outpaced inflation at the speed of light. Classic cars, hand guns — such as Lugers, Colts and Thompsons — rare coins, rare stamps, old maps, photographs by Stieglitz, Adams and Stichen, and sculptures by Saint-Gaudens, Remington and Calder have proved to be superior inflation hedges to gold and silver.
But if you choose to own gold or silver, stay away from the companies you mentioned and others that spend kings’ ransoms advertising “below cost” prices for precious metals. Those grifters must have markups to pay for advertising, office space, phones and sales reps who salivate when you call. To purchase uncirculated, or mint-condition, precious metal coins and know you won’t be gouged or short-sheeted, purchase them directly from http://www.usmint.gov, http://www.mint.ca or http://www.ramint.gov.au. Their markups range between 9 and 14 percent. If you rather would purchase gold or silver bullion, buy the metal from a trusted jeweler, a coin dealer or a dentist friend; the markup will be minimal. If you don’t want to pay a markup, then you have two choices: Steal it or pan for it.
Some folks enjoy owning rare coins, and you might, too. A 1916 Mercury dime with the D mint mark in MS-63 condition could have been bought for $800 in 1975. Today that dime can be sold for $19,000, which is about a 10 percent compounded return. An uncirculated 1919 Liberty Walking half dollar with a D mint mark was worth $600 in 1975. Today it can be sold for about $10,000, which is better than a 9 percent compounded annual return. A 1926 uncirculated Buffalo nickel with the S mint mark fetched about $330 in 1975. Today that nickel would cost you more than $6,000, which is about a 9 percent compounded return over the past 37 years. These are common coin examples, and you can find better and many more examples perusing The Official Red Book. This annually published reference book lists the value of nearly every U.S. coin, U.S. commemorative, U.S. territorial issue, Colonial coin, post-Colonial coin and state-issued coin. And there are always a couple of coin dealers in big cities that can help investors assemble a collection of rare coins at acceptable markups.
Meanwhile, I have several of each of those coins above and other rare pieces that I separated from pocket change when I began collecting coins more than 60 years ago. Unfortunately, they’re not uncirculated. However, they have also appreciated enormously in value during the past 60 years. There are several reputable coin dealers in Rochester than can guide you.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.