No, I haven't started a hot-tip newsletter. I'll give you the whole secret right now.
You probably already own this investment vehicle. Maybe a bunch of them. Maybe a whole jar-full of them.
Lincoln pennies.
You might have heard about this essay from Francois Velde, senior economist at the Federal Reserve Bank of Chicago:
What's a penny (or a nickel) really worth?
In this essay he provides longer-term solutions for dealing with the fact that pennies and nickels now are worth more melted than spent at their face value. As of today, copper (pre-1982) pennies contained metal worth 178% of its face value. Nickels, 155% of face value. (Thanks Coinflation.com!) Coins that have more intrinsic value than their face value disappear from circulation, which defeats the purpose of having coinage for exchange. There were recently measures put in place to discourage melting of copper pennies and nickels.
One of Velde's solution is to “rebase” the penny to equal five cents. The current coins would then stay in circulation because they would then be worth less than their intrinsic metal content. The pre-1982 pennies' intrinsic value would instead be worth about 35% of face value, and the zinc ones (1982 and later) would be about 17% of face value. Debasing the coins further — replacing the zinc and copper with steel, for example — literally requires an act of Congress, which takes time.
So here's the potential profit opportunity: Accumulate pennies. If the pennies do get “rebased,” they'll be worth five times as much, for an instantaneous 400% profit. Don't know how you'd report this income on your taxes, but I'm sure you'd be happy to cross that bridge when you come to it. A few hundred bucks is a nice little windfall if you've gathered a couple hundred rolls.
This is not individualized investment advice, by the way. Standard disclaimers apply. 😉
Now, here are some things that might happen:
- The rebasing would be announced without much warning. If they gave any kind of warning, this would virtually guarantee that all 100 billion pennies in circulation would evaporate into “safe-keeping,” re-emerging only when they're much more valuable. Giving people plenty of warning to hoard pennies for guaranteed profit is not the way to avoid a shortage.
- Banks may buy back pennies at a premium prior to the rebasing. If there's financial incentive to turn in pennies, people will do it. About ten years ago my bank at the time offered to buy back rolls of pennies for 55 cents each. It may be 60 cents per roll, or more, this time around. But do you take 60 cents now, or wait for $2.50 later? Or, once the Mint has enough pennies back and out of circulation, will it be declared that pennies are worth nothing as money? (But then, since it isn't a current coin, it might be all right to melt it then.)
- The rebasing doesn't happen at all. This isn't a sure thing. Another debasement could happen, in which case pennies would still be one cent apiece but would be made mostly out of steel, for example.
The Velde essay is one man's opinion on how to solve the problem. There will be a solution, and it may not be making pennies worth five cents each, but who knows? What real harm can it do to toss your pennies into a jar?
