There’s no end to the investment opportunities paraded before the buying public, with coins among the more popular in recent years. If the offerings have one thing in common, it is high price markup. Some months ago I reported on a firm selling 5-cent pieces for about 22 cents each. The 440 percent markup caused me to choke a bit. However, a newspaper advertisement just appeared that suggests the nickel peddler was a piker.

The headline reads: “U.S. Government to Abolish the Lincoln Penny . . . FOREVER?” The ad goes on to say “The First Federal Mint announces the limited release to the public bags of old vintage ‘Wheat Back’ Lincoln Cents. These have not been minted for over 45 years. You can acquire them in half-pound bags.” Though it took a bit of analyzing, plus a telephone inquiry to First Federal, I discovered that 61 pennies, in circulation these past many decades, can be purchased for $26.90. This represents a price markup of 4,410 percent, justified by their claim that “Most [the coins] have long disappeared . . . They’re sure to make a treasured gift or legacy.”

It didn’t take much investigation to discover that the “Wheat Back” bronze pennies, minted from 1909 through 1958, were produced in quantities up to 30 million per day. With some of these still included among the more than 130 billion pennies currently in circulation, they’re yours for the plucking at a penny apiece—a zero percent markup. Admittedly, some of them, such as 28 million issued in 1909 and displaying the initials of the designer, Victor D. Brenner, retail at $10 apiece uncirculated—but don’t expect to find any of these included in the bag. What you will find are coins from the late 1930s through the final year of issue in 1958. One prominent coin dealer, American Rare Coin and Collectibles, LLC, of St. Paul, Minnesota, lists their value: “The common date ‘wheat cents’ circulated from the late 1930’s up to 1958 are worth 2 cents per coin. The Lincoln cents dated 1929 and earlier generally trade in the $0.05-$1.00 range, based on date, mintmark, and condition.”

A concluding thought:
There is a rule of thumb I’d like to pass on to you. If a vendor must issue an 8-page color brochure or full page newspaper advertisement describing how wonderful its investment offering is, you may reject it out of hand.

You’ve heard the warning: If something seems too good to be true, it probably is. I’d now like to present just such a scenario. You may decide if what I’m about to describe is believable.

Over the past several years I’ve discussed retirement programs, particularly individual retirement accounts (IRAs). Those of you familiar with me know of my bias favoring the tax-exempt Roth IRA, as well as my preference that sound, interest-bearing securities not subject to market vagaries belong in these accounts. I shall now expand on my prior analyses by carrying a specific Roth IRA investment to its logical (or perhaps illogical) conclusion.

Presume that you’re in your early 20s, your job enables you to invest $5,000 each year, and you aspire to retire comfortably at 65. In January 2008, shortly after your 25th birthday, you open a self-directed Roth IRA with a discount brokerage, selecting as its holdings certificates of deposit, treasury notes, and high grade corporate bonds. Thereafter, each January over the next forty years, you systematically add $5,000 to the account. If during that period you generate 7½% annually—a reasonably obtainable rate—you will by age 65, thanks to the magic of compound interest, possess $1.25 million in this account.

Let’s now look at the rules: “The pre-death required minimum distribution requirements that apply to qualified plans and traditional IRAs do not apply to Roth IRAs. Thus, owners of Roth IRAs are not required to take distributions by April 1 of the year following the calendar year in which they attain age 70½.” Consider the ramifications. In every year from 65 onward you may distribute to yourself, completely tax-free, the interest earned in the account ($93,750 at 7½%), while the principal balance remains untouched as it continues to earn even more tax-free interest. Somehow I don’t believe this is quite what Congress envisioned when they enacted the law.

A concluding thought:
If what I’ve just described is implemented by no more that a handful of persons, it will remain a potential bonanza for the astute few. However, if massive numbers of taxpayers avail themselves of this program, it could break the bank of the U.S. Treasury. Under that circumstance, laws would hurriedly be enacted to end Roth as we know it today.

A revealing article appeared not long ago in the Wall Street Journal, titled “Turn Your Nest Egg Into Steady Cash.”  Its author, Staff Reporter Kelly Greene, instructively compared two routes by which retirees might invest their available cash so to obtain a steady flow of income.  The methods offered were predictable: an insurance company annuity or a mutual fund’s payout fund.  Both techniques are highly promoted by their respective industries.  Unfortunately, each presents notable defects that Ms. Greene, a thoroughly competent financial columnist specializing in retirement planning, alluded to in her analysis.

The annuity route, both fixed and variable, does not entice me.  The industry specializes in high fees and burdensome withdrawal penalties.  In addition, the initial cost of the annuity is lost to your forever.  An added disadvantage is that the payments you receive become worth relatively less over time.  In general, the annuity is not a device by which you will grow old in comfort.

The mutual-fund industry’s alternative, referred to as “managed payout” or “target distribution” funds, introduces uncertainties of its own.  Although the management fees are somewhat less, and the amount you invest does not automatically cease to be yours, there are no assurances that cash flow will continue at a predicted rate.  If the mutual fund managers guess wrong in their investment decisions, you may find your income stream reduced to little or nothing . . . with no recourse.

If you now expect me to recommend a technique by which you can realize a predictable annual return on your money of 10 percent or greater, I must disappoint you.  Although I regularly generate this for myself, it constitutes an active and time-consuming business, not passive investment.  Most persons are neither inclined to nor capable of involvement of this sort.  Don’t expect significantly higher yields than are offered by most FDIC-insured institutions.  And by the way, avoid like the plague promoters of programs that offer spectacular returns, sometimes up to 30 percent per month.  No good comes of that.

So what do I suggest?  You’ll be reasonably well off with a mixture of certificates of deposit, bank money market accounts, U.S. Treasury notes, and short or intermediate-term high-grade corporate bonds.  Admittedly, you’ll not beat the world in this way, but neither will the world beat you.  The advantages are that fees and costs are minimal, risk is slight, and your cash flow is easily predictable.  And of equal importance, you need retain no financial advisor to supervise your selections.  It’s a simple program to operate, with little to go wrong.