To Make a Profit, Know the Do’s and Don’ts
Many people who consider themselves savvy investors have little or no direct experience with alternative investments, such as precious metals. The reasons for that are diverse and plentiful, but some of the more common are: risk aversion due to the complexity of the subject; price fluctuation; and a limited knowledge of the role that precious metals can play in a balanced portfolio.
Precious metals, which include gold, silver, platinum and palladium, are primarily used as an investment to offset risk and serve as a hedge against inflation. One typically owns other investment assets in a complete portfolio. Precious metals are seen as an insurance policy for your overall assets, because the price of both primary precious metals – gold and silver –typically moves inversely to the economy. If the stock market is up, gold and silver are usually down a notch. But when the stock market crashes, precious metals take on a whole new luster, as we plainly saw during the Great Recession.
Since this article’s original June 9, 2015 publication, all four precious metals have seen either stable prices or gains: gold is trading at $1,283,80, up 9%; silver and platinum have retained their values, and currently trade at $15.1 and $844, respectively; and most impressive of all, palladium has doubled, rising 107% to $1,546.
With that in mind, here are the 5 “do’s” and 4 “don’ts” to know if you are considering investments in precious metals:
The 5 Do’s of Precious Metals Investing
- Educate yourself – Understand the difference between bullion and numismatic products. Read up on whether you want to own a physical amount of precious metals (tangible asset) or a precious metals exchange traded fund (ETF), which is considered “gold on paper” (intangible asset). Physical metals are allocated in your name, whereas paper gold is allocated to a bank-run fund.
- Keep your precious metals investment scalable – Most financial advisors recommend an allocation amount of between 5 percent to 10 percent of your total investable assets. Again, this is why precious metals are seen as a hedge (or, insurance policy) against other investments in your portfolio. Precious metals can also easily be added to existing IRA accounts.
- Keep a close eye on spot prices and research buying and selling trends – “Spot prices” are the exact amount that a precious metal is trading per ounce, and can be viewed in real time. One of the best resources for checking up-to-the-minute spot prices can be found on the precious metals website, Kitco News. With the technology available to us today, it’s possible to do a minimum amount of research and see how prices have behaved relative to common economic factors.
- Watch the dollar cost average of your precious metals investment – This is a tactic for minimizing asset risk by calculation over regular intervals, and is one reason why it is recommended that investors buy precious metals periodically.
- Make a plan for storing your precious metals investment – Bank safety deposit boxes do not ensure precious metals like FDIC-approved deposits. If your investment is substantial, look into storing your precious metals at a secure depository.
The 4 Don’ts of Precious Metals Investing
- Over-invest – They don’t call it “Gold Fever” for nothing. A good financial advisor can guide you to an appropriate investment level of precious metals. Keep in mind that your goal is to have a balanced portfolio, with precious metals acting the part of an internal insurance policy.
- Buy from unauthorized or disreputable precious metals wholesalers – Look for dealers with a solid history of doing business in the industry. The good guys should be easier to spot than the bad guys. A good place to start is checking with the Industry Council for Tangible Assets (ICTA) and the Professional Numismatists Guild (PNG).
- Fail to compare pricing information – If you wouldn’t pay retail price at a jewelry store, put the same effort into finding the best price per ounce for your precious metals investments. “Buy low, sell high” applies to precious metals just like any other investment asset.
- Brag to friends and acquaintances about your recent purchase of precious metals – Do this especially if you’re storing the assets at your home. All it takes are a few bad intentions and a poor hiding place to invite theft, or even worse.
The world of precious metals investing can be a complex but very rewarding option for savvy investors. Like anything else in the world of investments, do your due diligence and apply common sense, and you’ll be on your way to a truly balanced portfolio.
[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Alternative Assets Part 2: Investing in Real Estate and Other ‘Hard’ Assets.]