The Lombra Report: Rare Coin & Bullion Performance Study Performance of Asset Classes between 1979-2008

In 1995, Dr. Raymond Lombra, an economist at Pennsylvania State University, presented a 40-page report to U.S. Congress that demonstrated the benefits of including rare coins and gold in Individual Retirement Accounts (IRAs). This report addressed a 20-year-span from 1974 to 1993 and was commissioned by the Coalition for Equitable Regulation and Taxation (CERD) and paid for by the World Gold Council.

The report found that stocks and coins had the highest rates of return over that 20-year period. It also showed a positive correlation between the performance of rare coins and the performance of gold until 1987, at which point there was a sharp divergence with rare coins going straight up over the next three years and gold going down. These findings in the Lombra report served as the investment rationale for the legislation that passed in 1997 allowing the inclusion of gold bullion in IRAs. Bullion can be in the form of bars or ingots, or bullion coins such as Gold American Eagles, etc.

The study found that the inclusion of 5% gold and 5% rare coins in a diversified portfolio of financial assets would have increased portfolio performance without increasing portfolio risk or, alternatively, would have reduced portfolio risk without reducing portfolio performance. However, if rare coins are removed from the Lombra model portfolio and only gold is placed in the Lombra portfolio (which was the outcome of the 1997 IRA legislation), gold's inclusion in that portfolio only serves to reduce portfolio performance.

The Industry Council for Tangible Assets (ICTA) and other such industry groups have been lobbying over the past 10 years for inclusion of certified rare coins into IRAs -- not just bullion that the 1997 legislation allowed into IRAs. In other words, that certified rare coins be deemed tangible assets vs. collectibles for IRAs. We at Blanchard and Company believe that if certified rare coins are ever allowed in IRAs, it would have a huge impact on the rare coin market.

Meanwhile, other tangible assets firms and/or organizations have been working with Professor Lombra to update his findings. For instance, there is an Executive Summary of Professor Lombra's most recent report that examines the 25-year span of 1979 to 2003. It demonstrates yet again the superiority of rare coins over gold as both a stand-alone investment and as a hedge against inflation and declines in financial assets.

It again showed that stocks and rare U.S. coins had the highest rates of return. It showed that the returns on rare coins were more highly correlated with inflation than those of any other asset class, including gold bullion. It showed "rare coins dominate gold bullion as a diversifying asset" in that they do a better job of reducing volatility while at the same time providing enhanced returns. And it showed that, since 1987, gold is actually negatively correlated with inflation.

Over that 25-year period, the highest average annual rate of return was earned by investment quality rare coins (all rare coins in MS-65 and above). For both the 25-year period and the 15-year period, the Lombra model portfolio produced far better returns and less risk when gold was deleted and the only tangible assets included were rare coins!

Some industry authorities wanted to demonstrate the extent of the windfall profits available in rare coins as windfall profits are necessary for any tangible asset to function effectively as financial insurance. In its role as financial insurance, rare coins must go up a lot in price/value during periods in which typical financial assets go down a lot in price/value. The various Lombra reports show the ability of rare coins to do just that. The Lombra reports also show that, since the end of 1987, gold bullion just does not have that same capability.


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