People of a certain age all have the dream of a huge vault piled full of gold and money, with a diving board at the top of it that you can jump off of and dive into your gold. This is because many people grew up watching Duck Tales and the Uncle Scrooge McDuck’s favorite activity was diving into his money.
For most savers, amassing this much gold is not a reality. But there are intelligent ways to go about purchasing gold, silver, and other precious metals such as platinum and palladium. It’s very popular with gold stocks and ETFs like the GLD, which mimics gold’s spot price.
Many savvy investors do not trust all the paper gold and want to purchase the physical precious metals so they can balance out the risk in their overall investment portfolio. Of course, there is a risk to investing in precious metals, like any investment, and there are steps you can take to lower your risk and put your capital to work safely and intelligently.
So here are some guidelines, and some things to watch out for, when you are making investments into physical precious metals.
- Don’t do business with aggressive salespeople. Aggressive salespeople with slick marketing campaigns often direct unsuspecting clients into purchasing gold and other coins that are marked up significantly more than the average retail price. The reason they push these investments so hard is that it is good for the salesperson, not for you as the investor. They may even engage in fraud, so it is important to do your homework before purchasing your metals. To find a good company to work with, take the time to read this Rosland Capital review, they are a reputable company with a great track record.
2. Read some books before you buy. No one likes to do the research, but if you spend a reasonable amount of effort educating yourself on the gold market you’ll be armed with enough knowledge to make a good decision. The gold markets are very complex. The coin market alone is very nuanced. There are numismatic coins, there are proof coins, there are coins that are eligible to be held in an IRA, and there are coins that are not allowed in an IRA. Take some time and read a few books before approaching a gold company, and you will be glad you did because you will be able to ask better questions and avoid overpriced metals.
3. Watch out for buzzwords like “low risk”. Be aware if a salesperson keeps telling you that gold is low risk. Gold is like any investment, the risk of the investment is correlated to the price that you pay for the investment. The salesperson can not determine your risk, only you, the buyer, can determine your level of risk.
To lower your risk, ask the salesperson for transparency. Ask them to tell you about the company and where it is located. Ask them to tell you of any fees like transaction fees and storage fees. Ask about how much over the spot they sell their precious metals. A good dealer will be transparent about all this information. Gold is a business just like any other and it’s fine for a company to make a profit, you just want to make sure that it is a fair deal for both the company and you.
4. Be careful of leverage. Some precious metals investments allow you to use debt to make your purchase. This is a terrible idea on many levels. Investing in gold on margin is a bad idea because you are introducing liability into the asset. The whole point of gold is that it is an asset that does not carry any third-party liability or risk. Gold is known as a “bearer” asset, whomever possesses (bears) the gold has the asset, unlike a stock or bond. Do not use leverage to buy any precious metals. The chance of you making a smart decision using leverage is very small, and the chance of you making a huge mistake is very large.
5. Get a full rundown of all the fees. The fees that are built into investing in physical precious metals are something very few investors know of. There can be management fees, storage fees, and transaction fees. You have to pay a fee to your custodian as well as to the place where you decide to store your metals. This is not to discourage you from investing in go, it’s just that you need to be fully aware of what you are getting into before you make a big decision.
This article is not to scare you away from investing in physical precious metals. The fact that you are reading this article means that you care, and you know there are serious problems with our financial system.
As inflation gets worse and worse and the politicians print money to throw at every problem that they create, more and more investors are turning to that old form of wealth protection that is gold.
Gold has many benefits, chief among these is the diversification it brings to an investor’s overall portfolio. This lowers your investment risk, the risk of devaluation from money printing, as well as a third-party risk because you hold the actual asset.
Ray Dalio, the famous billionaire hedge fund founder has said that investors that don’t own gold, don’t know either history or economics. The history of economics is always the same, governments lose all self-control and debase their currencies into oblivion, and the only money that survives these traumatic events is gold.
Gold has vast experience surviving catastrophes.
Gold is referred to as a crisis commodity because when the shit hits the fan, investors always run to gold. Events that make the world a more dangerous place like wars, and economic and political collapse, actually make better conditions for owning gold.
The price, value, and desire to own gold go up when the rest of the world seems to be falling apart.
Everything moves in cycles. The world is not falling apart all the time, there are long periods of peace and economic stability. During this time risky assets like stocks and bonds and government paper rise in value. During these times, investors shun the safety of gold.
There are two parts to cycles, up and down, and eventually, the societies break down because of political corruption, and fear and anxiety come back and suddenly everyone rushes into gold.
We are at a point where fear and anxiety, wars, and social unrest are rising globally. Make sure you have exposure to gold in your portfolio. Don’t get caught trying to rush in, when it’s too late because you’ll have to pay a very high price.