Every year millions of Americans balance their portfolios for improved diversification or to take advantage of various market opportunities. Many turn to their trusted financial advisor or other industry specialists. Yet, there are those who prefer to go it alone when it comes to their investment strategy, as well as other means to insulate or potentially grow their wealth.
For many savvy investors on all levels, gold and other precious metals are attractive investment vehicles. However, like all investments, there is some inherent risk, and one should not be cavalier with their capital, lest they risk losing it all.
With that in mind, there is a lot of opportunity in gold investment. Some are too good to pass up, especially if you need more diversification in your portfolio. Yet there are some pitfalls and common mistakes do-it-yourself investors should beware of when it comes to investing in precious metals like gold.
Gold Isn’t Just A Short-Term Investment
Gold almost seems to have this perception around it. As if anything to do with gold comes with the instant success of opening up a pirate’s chest of gold. However, you shouldn’t let this cliché tempt you into the feeling that gold doesn’t have long-term value.
It’s important to take the spread into account. This is the price when you buy which includes dealers costs. It means you will immediately be out of the money when you compare it with what you could then sell it for. You may have to wait to see a significant return on your purchase if gold is going through a period of consolidation.
To make the most out of a gold investing strategy, you have to be prepared to make a medium or even a long-term investment plan. Historically, the odds are stacked very much in favor of long term investors over short.
A Gold ETF Is Not The Only Way To Get Gold Exposure
Gold ETFs or exchange-traded funds are an increasingly popular way for investors to get some gold exposure in their portfolio. However, they do tend to carry some increased risk, based on the way the contracts are written.
When you take the time to sit down and closely read the small print, you will find that it is the Trust that essentially has all the power. In the event that things go wrong, there are several clauses written in that are fully in their favor. This provides the Trust with the ability to essentially wiggle out of their obligations, leaving you at increased risk.
Owning Too Few Or Too Many Gold Stocks
The Ancient Greek philosopher Aristotle was a proponent of a practice he called “Pan Metron Ariston” which loosely translates into English as “Everything In Moderation or The Middle Course Is Best.” This also applies to your gold investing strategy.
If you only have a small handful of gold stocks it increases the chances that a problem with one can wreak havoc on the total value of your portfolio.
At the other end of the spectrum, owning too many gold stocks in a sort of scatter-spray investing strategy could doom you to simply match Indexes like the XAU or HIU. This is typically a product of falling for the over-promising and under-delivering of gold newsletters that boast of the chances for a big.
It’s best to take the time to sit down and find the right balance for your investment strategy. If necessary you should consider recruiting the services of a financial advisor who specializes in gold investments.
Don’t Rely On Jewelry For Physical Gold
Possessing physical gold can be quite comforting in small quantities. It gives you a sense of liquidity in a major economic event. However, you shouldn’t rely on jewelry as a means of investing in physical gold. This is because the value of a piece of jewelry is determined by several factors other than the spot price of gold. However, gold coins have the potential to give you a much better long-term return on investment.
Just don’t purchase rare numismatic gold coins without putting in your due diligence. There are a lot of counterfeiters out there who try to sell fakes to inexperienced and uninformed investors. To prevent something like this from happening you should buy standard gold coins like American Eagle and the Canadian Maple Leaf.
If you want to purchase a different type of numismatic coin, you should take the time to seek out a reputable source. Beware anyone who is trying to offer you a deal that sounds too good to be true. For numismatic coins, the profit is found in the long-term, not the short.
Don’t Fall For Scare Tactics
There are some unscrupulous dealers who will actively bait new and inexperienced investors into buying coins and other forms of physical gold at a significantly higher price. Some are even telemarketers hired by the third-party firms to tell investors that older coins are no longer subject to confiscation.
This leads leading investors into the notion that newer coins and metals could be confiscated. Out of the perceived fear that their investments will be taken by some mysterious government agency if they invest in modern gold bullion, investors purchase antique rare coins at drastically high prices. The reality is there is no confiscation protocol active in the United States Government that is specifically related to gold.
Don’t Buy Small Bars
The added production costs associated with producing small bars can lead to an immediate 10% decrease in your investment. Just like with jewelry and new numismatic gold coins, the smaller the gold unit is the higher the cost is to produce it. This means that It is better to buy into the wholesale gold market as much as possible. The most obvious vehicle to invest in physical gold directly is by purchasing bars. Just make sure those bars as substantial in size.
Avoid Contracts With Traps Written Into Them
While the gold market is more stable than most other investments, you still need to be able to take advantage of gold trends and changes as they happen in real time. This means you need to make sure that you can sell quickly and easily should the need arise.
Physical gold in all its forms is very attractive. Keeping it close at hand seems tempting. Especially if you are planning to use physical gold to insulate your wealth for a coming time of economic distress. Yet you risk losing that physical gold if it can be easily taken from you.
It’s also worth bearing in mind that most homeowner’s insurance policies do not cover large amounts of gold in excess of say 3 gold coins. If you have more physical gold on your property than this, you should strongly consider investing in a high quality safe. There are also some high-security vault services that will hold onto larger portions of gold for you, with systems in place that ensure that only you can access your gold. However, they are not widely available, so do your research in advance.
The Key to Long-Term Precious Metals Investing Success
These are just a few of the most common gold and silver buying mistakes we see new investors make. Before going all in, be sure to take these pitfalls into consideration. We also recommend finding a mentor with experience in the market whom you can trust to be unbiased and share his or her knowledge.
Taking the time to do your research, create a sound strategy and maintain a long-term mindset will make all the difference in your success in the gold and silver buying market.