15 Minute Financial Advisor

Two Nickels


You know what seems weird? I count coins as a way to relax. Atypical of my generation or probably the majority of the country, I use cash quite often, so I frequently end up with change. I usually stash it in a little Tupperware container, much to the chagrin of my wife. Silver colored coins in one, pennies in another. Side note: I’m in the camp of we probably shouldn’t mint pennies anymore. For whatever reason, ever since I was young, counting and rolling coins has always been relaxing for me.

As a habit, whenever I get change, I look at the dates. If it’s one of those new State-quarters, or the recent redesigned nickel, I won’t check it. If it’s older, I always take a look. I don’t know when I started doing it or why and the first thing people ask me is if I am looking for coins that have silver in them. I’m not. It’s not about silver. And actually, it’s pretty easy to tell if the coin has a different metal content than normal. They feel different. They look different. So, the date would just be confirmation anyway.

Last week, I found two nickels that “felt” different. I was shocked to see the dates: 1940 and 1941. FDR was the President, and finishing up his second term, or being re-elected into his third, depending on when they actually minted these coins. Speaking of the mint, these coins were made in San Francisco’s “Granite Lady” Mint. My mind continued to wander. Where had these coins been? Imagine being a teenager in 1940, and taking this freshly minted nickel to the grocery store to buy a 12 oz bottle of Coca Cola. Now imagine being drafted into the military to serve in WWII shortly after the 1941 nickel entered circulation.

On average, a nickel in 1940 would have purchased roughly what a dollar would purchase today. That doesn’t sound like much, but think of it this way, things cost almost 20x more today than they did back then. 20x more! This was almost 80 years ago and here are these nickels, just floating around. Does that mean that in the year 2100 houses in the San Francisco Bay Area will cost $100 million? Maybe.

Inflation is real, and it compounds. Imagine having stuffed these nickels, and even some dollars under the mattress back in 1940? The purchasing power having been whittled away to insignificance. It’s easy to look back and know what the correct answer would’ve been for growing wealth.

But people who were literally stockpiling cash had just been through a heavily deflationary period. The 1930’s were marred by the Great Depression and a decade of average annual deflation of just over 2%, according to inflationdata.com. That means the cash under the mattress was increasing its purchasing power. That cash, on average would’ve bought you more than 20% what it had at the beginning of the 1930’s. Recency bias is real.

Finding these two nickels was fortuitous for me. Not because they’re worth some huge amount of money. They’re probably not. I’m lucky that I found them, because it got me thinking about deflation, inflation and the value of diversifying. There may be another period similar to the 1930’s, and there may not be. We don’t know. As of this writing, it doesn’t seem like inflation will get out of hand, and it certainly doesn’t seem like deflation will be an issue, but how can we be sure? We can’t. But we CAN be diversified.

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