"Rare Coins Prudent" - Dr. Ray Lombra


U.S. Rare Coins Reduce Portfolio Risks

According to a 1998 study by Dr. Raymond Lombra, Associate Dean, Research and Graduate Studies at Pennsylvania State University in State College, Pa., "The two top-performing investments over the past 25 years were stocks, at 14.6% per year, and high-quality, rare U.S. gold coins, at 14.3% per year. A broader index of rare U.S. coins, including all types in grade Mint State-65 (on a scale of 1 to 70), performed at 18% per year over the same period."

In 1995, Dr. Raymond Lombra, presented a 40 page report to Congress on the use of rare coins and gold in IRAs for the Coalition of Equitable Taxation. Here are his major findings:

1. "A detailed analysis of hypothetical portfolios reveals that over the 1974-1993 period a portfolio consisting of 5% coins, 5% gold and the rest stocks, Treasury bonds and Treasury bills would have increased portfolio returns at the same time that it decreased overall portfolio risk. Given the turbulent economic conditions encompassed by the period, such and outcome is remarkable, suggesting that holding 5-10% of an IRA(individually directed retirement account) in gold and coins is both warranted and prudent."

2. "Measures of risk and returns aside, legitimate concerns about liquidity and safety are examined. Drawing on extensive evidence pointing to documented improvements in the markets for precious metals and coins (particularly those improving the information available to market participants), the practices and protections were judged to equal or better than those found in the markets for a variety of investments allowed within IRAs under current law."

3. "The notion that allowing gold and coins in IRAs would prove unproductive, in the sense that diverting funds from productive uses is carefully considered. Since coins and bullion within portfolios are not consumed, but represent savings, their acquisition can improve saving at the margin and therefore augment the pool of funds available to finance growth enhancing investment spending. How precisely a dollar enters the pool is largely irrelevant. Since widening the range of choices within IRAs encourages broader participation and thus increases savings, and since precious metals and coins improve the investment performance of IRAs, discriminating against such investment options is counterproductive and especially unwarranted in a nation experiencing a significant savings shortfall."

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