Perhaps you’re new to precious metals investing. Maybe you have plenty of experience investing in other asset classes, but gold and silver may be new territory for you. Here are five things to know before investing in precious metals
1. Physical gold and silver in hand is not the same as precious metals ETFs and mining stocks.
Precious metals ETFs and mining stocks may give you exposure to the gold and silver market, but with a few caveats. With mining stocks, you are investing more in the miner than in the actual metals. The value of your investment ultimately rests on the fundamentals of the company, whether good or bad. So even if the price of gold and silver are rising, a company’s stock value may drop if the company itself is underperforming.
But more importantly, and this applies equally to gold and silver ETFs as well as mining stocks, during an economic crisis or a collapse of electronic infrastructure (as can happen during a natural disaster), you can’t buy anything with a piece of paper stating that you own metals ETFs or mining stocks. Physical gold and silver are forms of money; paper gold and silver are not.
2. Precious metals can help you diversify, but even metals need diversification.
Let’s suppose you decide that gold is the right investment for your portfolio. What kind of gold are you looking to invest in? Bullion bars? Investment grade limited-strike coins? If the latter, which coins? Limited-strike coins trade at a premium above bullion bars. That’s because some of the crafted coins are much more rare, and their value is based not only on the price of gold but the rarity of their distinctive design. This makes coins a much better hedge against price risk than bullion bars. Ultimately, owning both might be the ideal solution. How much of each you decide to purchase depends on your capital resources and your allocation preferences.
3. The finer the metal, the higher the investment value.
Gold that is below 22kt may be suitable for jewelry, but it isn’t the best grade for investment purposes. The same goes for silver with a fineness of less than 999. Remember that bullion value is based on three things: weight, fineness, and finally, the spot price. The higher the value, the better the investment.
4. Physical gold and silver are private assets and should be stored securely.
Physical precious metals offer the holder a great deal of privacy and accessibility. This also means that the owner is solely responsible for securing his or her assets. So before you buy gold or silver, plan for secure storage, whether in a safe, safety deposit box, or a trusted storage vault. It goes without saying that privacy of assets entails responsibility for securing those assets. And the gold and silver you own embody a good portion of your financial wealth.
5. Before Your Buy, Find a Reputable and Ethical Seller
If you don’t do your research, you may not get the most competitive price or the best service. Although you are probably careful enough not to end up getting fooled by a scam, the only way to ensure that this doesn’t happen is to research the company from which you intend to buy. Here are a few simple tips:
First, check the Better Business Bureau: A strong rating on the BBB website says enough about their reputation for you to consider them as a strong candidate.
Second, assess their experience against their customer ratings and reviews: older doesn’t necessarily mean better. What matters is market expertise, experience of the individual dealer (a young company may employ people with decades of experience, for instance), and overall customer service.
Third, check the company’s content offerings: if a company provides educational material, and if their content demonstrates knowledge and expertise, then chances are that you are dealing with a company that knows what it is doing. Remember, a dealer who has expert knowledge of his or her market and industry is no mere salesperson. And in the financial sector, this combination of market knowledge and customer service is a lot more rare than most people think.
These five tips are enough to help you get started. If you need assistance taking the next few steps, give us a call. Let us help you find a personalized strategy to help you achieve your investment goals faster and in a way that can help minimize your market risk.