Rare coins have many advocates, including Tom Noe, the local businessman who manages $50 million in rare coin funds for the Ohio Bureau of Workers' Compensation.
But buying and selling centuries-old coins isn't for everyone.
"This is not for people with a net worth of $50,000," said Raymond Lombra, an economics professor at Pennsylvania State University who has researched the coin market and its annual returns.
In his initial proposal to the state, Mr. Noe made it clear that the coin fund could lose money for the state.
"These securities are speculative and involve a high degree of risk," read the title page of his confidential memorandum to the state, sent in December, 1997.
Although the state was the sole investor, the description of the fund considered the possibility of other individual, private investors.
But not just anyone: It only wanted individuals with a net worth of $1 million or more or annual incomes of $200,000 or more to participate and who had "no need for liquidity in their investments."
Likewise, the other coin funds that sparked Mr. Noe's interest in coin funds were only for the wealthy. The now-shuttered funds run by Merrill Lynch and Kidder, Peabody were only available to the rich, said Kevin Lipton, a Beverly Hills coin dealer who has done "millions of dollars" in deals with Mr. Noe over the years.
"Whenever it's high risk, they have to make sure [the investors] can afford to lose the money," said Mr. Lipton, who helped manage the Kidder, Peabody fund before it dissolved.
Nearly two decades ago, Bruce McNall teamed up with Merrill Lynch to offer the Athena Fund, which traded in rare coins. The California man had parlayed his rare coin business and other ventures into ownership of the Los Angeles Kings of the National Hockey League.
But McNall's funds eventually collapsed, and Merrill Lynch, which marketed the funds, agreed to pay investors more than $20 million in settlements. McNall was later convicted of fraud.
Although the value of rare coins has risen markedly in the last few years, they are not yet part of the everyday investor's portfolio. Few if any other states allow investments in rare coins.
"It is not a normal practice that we are aware of in the industry," said David Goad, senior vice president for the U.S. Tangible Investment Corp., which specializes in assembling portfolios of high-quality, independently certified rare U.S. coins.
Managers of public money appear reluctant to move into an area they know little about. While there are thousands of experts on stocks and bonds, there are far fewer rare coin experts.
"In the coin industry, the people with the expertise are very limited," said Chris Cipoletti, executive director of the American Numismatic Association, a nonprofit organization that seeks to educate people about money issues.
In the hands of a skilled coin trader, a rare coin investment is a moderate risk, Mr. Cipoletti said. In the hands of an unskilled trader, coins can be a high risk.
"If Tom [Noe] is doing the advising for the state of Ohio, Ohio has one of the best experts it could get," Mr. Cipoletti said. His agency also acts as a watchdog for coin collectors, investigating problems with dealers.
Mr. Lombra said investors' willingness to trade in coins depends on their "tolerance" for risk. And he said if they have the tolerance, they should make coins a fraction of their portfolio as a hedge against big swings in other financial markets that rarely affect coin prices.
Contact Mike Wilkinson at: firstname.lastname@example.org or 419-724-6104.