Tuesday, December 22, 2009

How to Make Money By Collecting Nickels

Bear with me on this one

Currently (Dec. 2009) U.S. nickels are worth five cents. The cost of the materials that nickels are made of (nickel and copper) comes to about 4.5 cents. So the face value of a nickel is slightly more than the cost of the materials. However, commodity prices are subject to fluctuation. In 2008 the amount of copper and nickel in nickels was actually worth about 6 cents. That means that if you had sold your nickels as metal, you would have made about a 20% profit. Not bad.

Commodities in general, and metals specifically, are expected to make significant gains in 2010 and for the foreseeable future as the dollar loses value. This means that the price of copper and nickel is likely to increase, while the face value of a nickel is likely to decrease. This means that in the future your nickels will be worth more for their metal content than as currency. In fact, I will go out on a pretty solid limb and personally guarantee you that sometime in the next two years, the value of a nickel will be higher for its metal than for its worth as money.

And its happened before too. Dimes used to be made almost entirely out of silver. However, in 1965, the cost of silver exceeded the value of the dime. So guess what happened? The government changed the makeup of dimes and started making them out of cheaper alloys. How much are pre-1965 silver dimes worth now? About $1.25. Imagine if you had stashed $1000 in dimes in 1965. A one-thousand dollar investment would now be worth $125,000. Thats hard to beat. Especially when you consider that there is no way to lose. More on this later.

Why does the price go up? Lots of reasons, but the big one is obvious. Once the government starts producing cheaper substitutes, the Treasury Dept. is going to start collecting all the more valuable originals to melt down and sell as metal. They aren't stupid. You can't keep producing coins that cost more to make than they are worth.

Once the majority of the valuable nickels are pulled off the market, the only ones left will be the cheap substitutes. Collectors will rush to get their hands on the original nickels. Other people will rush to melt them and sell them as metal. Either way, the nickel you bought for five cents will be selling for a lot more than that.

The best part about this investment is that you can't lose. Even if I'm wrong (never happened before) you can't lose. Lets say nickel and copper prices drop significantly and the government never starts using cheaper alloys. Well, your nickel is still worth five cents. You didn't lose anything. You can hold it for 50 years and never lose. Do you know of any other investments that can't lose value?

The downside is that you have to actually buy a crapload of nickels and keep them somewhere safe. To make it worthwhile you should probably buy at least $1000 worth, which would take up a lot of space and be very heavy.

You can go to banks and ask for $50 worth of nickels without attracting too much notice. Vending machine operators and fast food chains do this frequently. Just go to the bank once a month and buy a bunch of nickels. Eventually you will have a pretty big collection. Its an investment that can't lose, and will probably make major gains.

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3 comments:

  1. Very interesting. Have you found any metals dealers that are willing to buy the nickels as metal? I wonder what the process is like to actually harvest the metal, since it is either an alloy of nickel and copper, or a coating of nickel over copper. Just thinking out loud. ;)

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  2. That's a good question. Howtomakeadollar actually has several contributors who have PhD's in metallurgy and finance. Our recommendation is to hoard a bunch of nickels and then when metal prices skyrocket, go around looking for shady black market kinds of people who look like they know how to melt down metal. Thats probably your best bet.

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