Friday, February 11, 2011

Another argument for nickels!

Been busy, so haven't posted lately.

On one of the forums I frequent, the discussion about investing in nickels has come up again (as it does from time to time).

The argument in favor of buying up nickels, is that while only being worth 5 cents face value, based on todays melt value at they put nickels at a worth of 7.2 cents per nickel.

If history is any indicator of things to come, the US Mint may soon do to nickels what they did to old silver dimes and quarters - changed to some worthless or "worth less" base metal, to save money and cost. In the case of silver dimes and quarters, you rarely find one in circulation today (this change happened in 1964). Pennies went from being 95% copper (1982 and older) to the zinc clad slugs we don't bother picking up or even putting in a change jar today.

Here is a link that outlines some of what is currently being discussed in the House and Senate regarding coin composition.

The arguments against nickels are many. Primarily, people hold that copper and nickel values are measured by the pound, so are a slow gain in value (compared to silver and gold being measured in dollars per ounce). Others maintain that spending money now, instead of buying nickels with it, will have more worth if you spend it on something worthwhile. They believe that by the time your nickel is worth 4x its face value, inflation will have made those gains obsolete, and maybe even a loss. Another chink in the nickel-plated armor debate, is that the composition of pennies changed in 1983, but the old pennies, though worth around 3cents per penny today based on melt value, are still widely in circulation and easily obtained (some hold that they are still 20% of circulating coins, but that may be one of those statistics that gets "made up on the spot").

So you have to ask yourself, which camp are you in? If you believe in covering all bases and diversifying, as I do, then maybe some measure of nickel investing is for you. If you have lots of money to spend on stocks, IRA's, 401K's, gold and silver, oil, commodities, etc... or if you just think it's not worth your time, then nickels probably aren't going to be something to waste your time and resources on.

So now, how do you go about it? Again, many choices and options are available, and you will have to decide best suits your situation, goals, and means.

Some buy $100 worth of nickels per month. If I had that kind of spare cash, I'd probably be buying gold instead of an occasional silver piece! The other extreme, is just saving your nickels from change at the store. The compromise option between those is what I am going to address.

You see... a nickel and a quarter are both made up of nickel and copper. Technically, a quarter has more, because it weighs 5.67grams whereas a nickel only weighs 5.00grams. The nickel however, has a slightly higher ratio of nickel to copper than the quarter does, and nickel is currently worth roughly 3x the value of copper. That makes a nickel worth over 7.2 cents (at todays melt value of $4.53/pound copper and $12.79/pound nickel) and quarters only worth 6.5 cents. So just starting off, a nickel, being worth 1/5 of a quarter, is worth 0.7 cents more per coin.

Sooooo.... imagine getting a quarter for change at the grocery store. You of course check the date to see if it is 1964 or older, to make sure it's not a silver quarter worth $5.44 cents based on todays silver price of almost $30/oz! Sadly, it is not... So what to do now? Your shiny twenty-five cent piece, though worth 25 cents <happy-face value> because the government says so, is really only a paltry 6.5 cents <sad-face value>. If only there was some way to make this quarter worth more before sticking it in your piggy bank back at home... IF ONLY!!!!!

Then it dawns on you - that cashier has a wide variety of pennies, nickels, dimes, and these anemic quarters just weighing her drawer down! You ask her (quickly, before she closes her drawer) if you could please get 5 nickels for your quarter! She looks at you funny of course, because no one ever wants nickels, they actually ask her for quarters instead... but she obliges, and takes your shiny, popular quarter and hands you 5 measley nickels. Transaction over.

Now lets do the math. You traded one quarter with an intrinsic value of 6.5 cents for 5 nickels, each worth 7.2 cents! You went from 6.5 cents of metal in your hand, to (5) x.($.072) = THIRTY SIX CENTS!!!

Of course, if you do not want to save or invest in nickels, you can still use your 5 nickels for face value 25 cents just like the quarter (though slightly less portable). But why not gain 600% in physical worth, by trading your quarter for nickels, you know... just in case?

No comments:

Post a Comment