How can I safely invest in gold? What’s the essence of investing in gold anyway? Is it worth the risk or should I keep off this yellow metal? We shall, in this article, address these concerns, in a bid to help you accumulate knowledge that will be useful to you as you get started with investing in gold. Let’s get right into it:
People have highly valued gold for millennia, and today’s investors are no exception. There are a lot of reasons to add gold to your portfolio, whether you intend to purchase it in the form of coins, bars, or gold-backed securities. Gold is regarded as a “safe haven asset” because when the prices of other investments, such as stocks or real estate, fall sharply, gold does not lose value — in fact, it may even increase in value as fearful investors rush to buy it.
Furthermore, because gold has held its value for hundreds of years, some experts believe it is the ultimate way to protect your savings from rising prices. But when is it really a good idea to invest in gold? And what is the most effective method?
There are four ways to invest in gold.
This is what most people envision when they think of investing in gold. It is also known as “bullion.” Gold bars, gold coins, pure gold chunks, and jewelry are the stuff of treasure chests and bank robberies. And, while it is the most exciting way to invest in gold, it is also the most difficult to buy, store, and sell.
A word about gold jewelry: While it can sometimes increase in value over time, appraising it can be difficult, and there are no guarantees you’ll be able to sell it for more than you paid for it.
Buying stock in a gold-mining company, like any other stock, carries some risk, but it also means you have complete control over which specific companies you invest in. Some investors, for example, may prefer a gold-mining company that practices strong environmental responsibility over one that does not. While owning stock does not allow you to hold gold in your hand, it does provide you with the benefit of an asset that you can sell at any time.
Gold-backed mutual funds
When you invest in gold mutual funds, you own shares in a variety of gold-related assets, such as many companies that mine or process gold, but you do not own the actual gold or individual stocks. Gold exchange-traded funds (ETFs) or mutual funds (MFs) provide more liquidity than physical gold and provide diversification that a single stock does not. Certain legal safeguards are also provided by ETFs and mutual funds. Keep in mind that some funds will charge management fees.
Futures contracts on gold
A gold futures contract is a contract to buy or sell a specific amount of gold at a later date. On exchanges, the contract itself is traded. Gold futures are more liquid than physical gold and do not incur management fees, though brokerages may charge a trade fee (also known as a commission) per contract. Keep in mind that trading futures contracts carry a high level of risk and is not a good investment for inexperienced investors. The amount of money you can lose with these investments can be greater than your initial investment.
How to Invest in Gold Stocks, Mutual Funds, and Exchange Traded Funds (ETFs)
Investing in a gold stock, ETF, or mutual fund is often one of the most common ways to add gold to your portfolio.
A brokerage account, which you can open with an online broker, is required to purchase a gold stock or fund. After you’ve funded your account, you’ll be able to select the gold-related assets you want to invest in and place an order for them on your broker’s website. Individual stocks and ETFs are bought for their share price, which can range from $10 or less to four figures. Mutual funds, on the other hand, have a minimum investment requirement of $1,000 or more.
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Diversification and gold investments
Gold investments can help diversify your portfolio, which is one of their advantages. Diversification is the practice of investing in a variety of assets across industries, company sizes, and geographic areas. Owning stock in a gold mining company or a gold ETF exposes you to the gold industry, and because gold does not always move in lockstep with the stock market, it can help diversify your holdings even further. Of course, if your entire portfolio is made up of gold investments, it will be completely undiversified.
How to Purchase Physical Gold
Here are some things to consider if you decide that investing in physical gold is the best option for you.
Find a reputable dealer
Working with pushy salespeople and falling victim to scams can make navigating the world of buying and selling gold difficult. Sellers can inflate the value of their product or use persuasion tactics to create a sense of urgency to buy right away. Doing your research ahead of time can help you avoid making a bad investment.
Keep an eye out for fees
Gold dealers typically charge a premium over the “spot price,” or the price at which gold trades on a commodities exchange. This premium is typically made up of a dealer fee as well as manufacturing and distribution costs.
People make jokes about burying gold for a reason: it’s valuable, and because it’s a physical commodity, thieves may attempt to steal it. It’s critical to plan ahead of time to store your gold in a secure location, whether that’s a physical safe or a safety deposit box at a bank. Safely storing gold can be costly. Safety deposit boxes at banks can cost anywhere from $30 to several hundred dollars per year, depending on their size.
Think about getting insurance
The cost of insurance is an additional expense of owning physical gold. If you buy insurance, make sure it covers the exact type of asset you have.
Recognize the illiquidity of your investment
Physical gold, unlike gold stocks and funds, may be difficult to resell. Pawn Shops aren’t known for their fair pricing, and if you sell your gold back to a dealer, you’ll probably get less than the spot price.
Important read before you begin investing in gold – Gold Roth IRA Rules | Let´s go through them in a simple way
Frequently asked questions on “ How to safely invest in gold”
1. Will I pay taxes on gold investments?
Profits from trading securities such as stocks and bonds are known as capital gains, and they are taxed differently depending on whether they are long-term or short-term capital gains. However, the IRS views profits from trading precious metals and other “collectibles” differently.
Gains from physical gold are taxed as ordinary income if held for less than a year and at a maximum 28 percent tax rate if held for more than a year.
Profits from trading gold ETFs are taxed as collectibles trading profits rather than capital gains like other stocks.
2. What Are the Advantages of Investing in Precious Metals Rather Than Stocks?
It’s better to invest in precious metals than in stocks because they are a hedge against inflation, have real value, don’t have credit risk, have a lot of money, and are easy to buy.
3. What Are the Best Precious Metal Investing Strategies?
The best way to invest in precious metals is to buy the metal outright and keep it in physical form, or to buy exchange-traded funds (ETFs) that have significant exposure to precious metals or companies involved in the precious metals business.
4. What Are the Drawbacks of Investing in Precious Metals?
Individuals will not receive any income from precious metals because they have no cash flow. If a person owns the metal outright, there is also a storage cost associated with the investment.
5. Is it a good idea to invest in precious metals?
Precious metals provide unique inflationary protection because they have intrinsic value, are not subject to credit risk, and cannot be inflated. That means you won’t be able to print any more of them. They also provide genuine “upheaval insurance” against financial or political/military disruptions. According to investment theory, precious metals have a low or negative correlation with other asset classes such as stocks and bonds. This means that even a small proportion of precious metals in a portfolio will reduce volatility and risk.
That will be all for today’s article in which we have addressed the question, “How can I safely invest in gold?” My hope is that you now have the response to this question and that you now know how to go about investing in gold. If you still have more questions with regards to today’s article, do not hesitate to drop them in the comments section so that I can get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!