Diversifying Your Portfolio
Diversifying Your Portfolio
With Rare Coins and Bullion
At the American Numismatic Association’s Summer Seminar I found myself in a discussion with a small group of very sophisticated coin collectors and investors. While we were all thoroughly convinced that collecting and investing in rare coins was a legitimate method of diversifying our total investment portfolio, we found ourselves in strong disagreement about the percentage devoted thereto. In other words, when calculating all your individual or family assets, what percentage should be devoted to rare coins. But before we consider the percentage, let’s consider the makeup of a typical American family portfolio.
Our example involves a married couple, in their 40s with two teenage children. Both parents work full time, contribute to their employer’s 401K, own their home with one parent recently receiving an inheritance. The couple have some outstanding consumer debt:
| Husband | Wife | Total | |
| Annual Salary | $ 75,000 | $ 55,000 | $ 130,000 |
| Contribution to IRA | 5,000 | 4,000 | 9,000 |
| Value of IRA after 20 years | 150,000 | 100,000 | 250,000 |
| Extra Annual Savings | 2,500 | 2,500 | 5,000 |
| Total Savings over 20 years | 50,000 | 50,000 | 100,000 |
| Combined credit card debt | 10,000 |
So in addition to the family combined IRA and Savings over 20 years, the family home is valued at $350,000 with $100,000 in equity. Finally, Wife’s mother recently died leaving her with a $60,000 inheritance.
Adding everything together, two IRAs (250,000), savings (100,000), equity in the home (100,000) and the inheritance (60,000) less the credit card debt (10,000), the family total net worth is $500,000.
Let’s further assume that the IRA is fully invested in stocks and mutual funds balanced as 60% stock and 40% bonds. Let’s further assume that the savings is in a simple savings account and the inheritance is also in a cash account. Most everyone would agree to immediately pay off the credit card debt. Therefore the portfolio would be disbursed as follows:
| Stocks (250,000 x 60%) | $150,000 |
| Bonds (250,000 x 40%) | 100,000 |
| Real Estate | 100,000 |
| Cash in savings less the 10k credit card debt | 90,000 |
| Cash from inheritance | 60,000 |
| TOTAL portfolio | $500,000 |
So now the question becomes, should this couple invest in rare coins and/or bullion. Since you are here on this numismatic website, we must assume that we would all agree that the answer to this question is yes. It is advisable to have a certain amount or percentage in hard assets. So what percentage?
Back to my story. I mentioned to this group of numismatists that I had recently calculated the value of my coin holdings as a percentage of my portfolio and that I had been somewhat concerned to find that it was 6%. I have been a long time believer in the stock market and traditional investing in equities, whether through mutual funds, ETFs, or individual stocks. Nonetheless I also realized a long time ago that hard assets could act as a hedge against inflation and would justify purchases to support my fascination and semi-obsession with rare coins.
Immediately I found myself in a minority of 1. When asked the percentage of their portfolio in numismatics the closest to me was 30%. Others devoted 40%, 50% and one even claimed that he put everything he had, a full 100% in rare coins and bullion. I must say I was shocked. Even 30% shocks me. It did get me thinking however that perhaps my measly goal of 5% was somewhat low. But even so, I could never consider it being above 10%.
If you expected to get a recommendation about the proper percentage of your family portfolio to be devoted to hard assets of rare coins and bullion, I am afraid you will be disappointed. The only answer I can give you is what is right for me. You need to decide for yourself what is right for you.
I suggest that you begin by taking an inventory of all your family assets and divide them into several simple categories, such as stocks, bonds, cash, real estate, etc. After calculating the total, determine the percentage of your portfolio for each category. Be sure to include your current coin collection (and bullion) as a separate category and determine the current percentage of your total portfolio that it encompasses. Ultimately you may want to make adjustments upwards or downwards depending on your level of comfort and overall financial plan. The above example is only for instructional purposes only. If $500,000 portfolio is not worthy of consideration, as they told us in law school, just add enough zeros to the figures to make it interesting.
So what about me? I have decided not to strictly stick to a cap of 5%. I have raised my cap to 10% with my current percentage around 6%.
Whatever you decide, whether it’s 1% or 100%, I can advise you to devote some percentage to hard assets and as a numismatist, there is no better hard asset than rare coins and bullion. But you already knew that.