About buying and selling coins

4:10 PM 4/24/11

So how do you buy and sell gold and silver coins? I have to talk about this because there's something that I don't know the answers to, myself.

I've been wondering what to do with a very large amount of money which is, right now, all in the form of 'financial paper.' I don't know how much money there is. This is my father's money. He saved it for years and years working as a radiologist. He retired early, which was his goal, and is now living off the saved money. Whatever his investments are, they are profitable. When I went to visit them in West Virginia in December 2010, he got a call on the phone from a guy who had been his stock broker for a really long time - I actually remembered the name of this particular guy who called on the phone when I was a teenager - and the guy told him how much money was coming in at that time from his stuff, whatever it is.

I worry that something might happen which would make all of my father's money disappear. I don't know which kind of papers he has. He has some stocks, bonds, and other things that earn interest. However, I myself *believe* that earning interest is dangerous and ineffective - that the interest rates are too low to be worth the risk of losing whatever you are invested in. I just don't 'believe in' even TRYING to earn interest anymore.

However, the reality of dad's investments is that something, somewhere, is profitable. He has mutual bonds (is that the right word?), and I don't know what those are, and he has local government bonds. Some of the state governments are having trouble paying their bonds and might default on them.

This is one of the reasons why I have spent some time learning about money and investing. If dad dies, I will be responsible for my share of whatever inheritance he gives to me. I don't know how much I will inherit, versus what mom and John inherit. I have no idea of the actual real value of his money and what form it will be in. I want my dad to live to be 120 years old... but of course, sooner or later, he will die. I don't know how much of the money will be left when he does. Whatever it is, it will be a large amount of money, more than I have ever had in my hands all at once before. Even if it's only a relatively trivial amount, like $50,000, that's still more money than I make in a year, and more money than I have ever had handed to me all at once, so I still need to be responsible for learning what to do with it when I have it.

In some ways, it's a mistake to do nothing but buy a whole bunch of gold and silver bars and coins, and nothing but that. To be honest, my 'personal beliefs and preferences' suggest that that is what I ought to do. That is, in all honesty, what I believe. But in reality, I will probably learn about what this is, all these investments and pieces of paper, and how they are 'earning interest,' quote unquote, even though I am extremely skeptical about what interest really means in an untrustworthy financial system where the interest rates are too low, the risks of losing it all in one big default are too high, and the value of the dollar is getting lower and lower due to inflation. That is why I have been learning about all this stuff for a while. It's been a while since I studied anything financial, so none of it is fresh in my memory at this time, but I will learn it as necessary.

I do not want to waste his money - I want to get financially independent. He gave me and John a book, 'Your Money Or Your Life,' about how to let your money keep earning enough interest that you never have to work again. However, the recommendations in that book are now outdated, because most of it depended on the thing that I can't remember the name of, which is no longer really profitable or reliable. Some kind of government bond or paper. T-bills or something. The whole plan in the book depended on T-Bills, which aren't as profitable or reliable as we would like.

The rest of the book recommended an extremely simple, conservative, frugal lifestyle. I don't mind an extremely conservative, frugal lifestyle, and I love the idea of not having to work. There are so many things I would do if I didn't have to go to a job. I could survive on the tiniest amount of money. I have seriously considered living in my car so that I would not pay rent, and I have been reading on the net about the realistic details of HOW to live in your car. My car has some problems, which makes it unlikely that I will be living in my car until and unless I fix them. Anyway, that is the type of extreme that I will go to.

However, with my chronic fatigue and other problems, I am unable to transition into the lifestyle I want to live, the lifestyle of extreme frugality, for the purpose of financial independence, for the practice at becoming as frugal and independent as possible, even while my father is still alive, which I sincerely hope will be a very, very long time still. But even as I hope that, I know that I must be prepared for his death sometime, and I must anticipate what I will do with an unknown amount of money, as we haven't talked about the exact amount of money that it will be. Even if it is only 'trivial,' like $50,000, as I said above, I want to keep that money from disappearing, and I want it to work for itself earning 'interest' quote unquote if there is such a thing. I severely distrust all banks and government institutions with large amounts of money, and I expect them to either default on their debts, or else make the dollar so worthless that $50,000 won't buy a loaf of bread - one or the other I expect to happen.

That is why I wonder about whether it's worthwhile to buy nothing but gold and silver with the entire amount. There are people out there who would be seriously considering doing that kind of thing.

There are some things that happen when you buy and sell coins. I have a trivial number of coins, not enough to be really useful, just enough to feel that I have a tiny bit of money saved for an emergency.

Here is what happens. If I buy a coin for $20 today, and then I turn around and sell it back to the same guy who sold it to me, he will have to knock off a portion of the dollar amount when he buys it back from me, and I might get $15 for it when I sell it to him on that very same day. This is real, as I did sell a coin that I had to the guy I bought it from, and he explained that he can't buy coins back at the price he sells them at, and that it's not advisable to sell them back right away, but instead to sell them back after a long time has passed and the dollar value has gone up.

I have thought about the concept of 'value,' and I am skeptical about the idea that the coins are actually 'increasing in value,' as I am aware that the value of the dollar is falling, and there is a bubble of unknown size somewhere in the financial system which may pop at any time, and then, aside from all that, the value of gold and silver is actually increasing an unknown amount, but it's partially controlled by mysterious people and forces who have kind of a monopoly on it, or else, people are controlling the price in some other way that makes the price unreliable or untrustworthy. I don't know any details - all of this is just a vague concept.

Anyway, the first thing you must assume with coins is that you shouldn't try to sell them back quickly after buying them. They are something you hold onto for a long, long time, and the 'imaginary price' of those coins might 'go up' quote unquote, even though you know it might not really be 'going up in value,' as the entire concept of 'value' is a mess. But don't try to sell them back a few months from now.

You would need to keep part of the money in a physical 'jar' of paper bills, if you strongly distrusted the banks THAT MUCH. You would keep enough money in the bank to be able to use your checking account as needed. The paper dollars in the 'jar' are there for you to use without any transaction costs, that money that you destroy when you buy the coin for $20 and sell it back the same day for $15 - that might be the bid/ask spread. You need to have plenty of money that you can get to without any transaction costs. All gold and silver coins must be left to sit there for a very long time without being sold, as they have such a high transaction cost for selling them.

I have imagined the need to write a spreadsheet where I would keep track of the ratio of the values of various items, such as the ratio of silver/gold, silver/oil, and so on. I might even put in a couple types of human labor, you know, the minimum wage labor, and other hourly wages. This is all vague yet.

When you buy a piece of silver, you would record its ratios for the time when you bought it. This gives you some idea of its 'value' aside from the dollar value. All those other commodities are also affected by the bubbles and the manipulations in the financial industry, so you can't get any kind of 'absolute truth' as to how much anything is really worth, but you can only say that one piece of silver was worth one pound of coal or whatever at a given time. When you prepare to sell something, you would once again look at the ratios on the day when you wanted to sell it. You would say, 'Hey, look - the silver/coal ratio has gone up. Silver can't buy as much coal as it used to,' or 'The silver/coal ratio has gone down - one piece of silver can buy a lot more coal than it used to.' And then, although my brain is fuzzy today and I can't think too well - then, you would look at several different ratios and decide the moment when it really would be profitable to sell your coins, taking into account the transaction costs as well.

That is why I am thinking about these things. I am sick, I have no money at all, I don't make any money at my job. But I am studying double-entry bookkeeping, and I am going to learn about finances and investing. I have read a couple books about investing. This is because I will inherit an unknown amount of money from dad when he dies, and may he live a much longer time yet, I hope.

I didn't mention anything about 'bullion coins' versus 'collector value coins.' I don't get any coins that have 'collector value.' I only look for the ones that are close to the bullion value. I distrust collector value, as it's probably harder for people to agree about.