How to Invest in Gold
Whatever assets you choose to invest in you will see fluctuations in price. Prices increase and decrease according to all manner of factors, but the main thing is to look at the overall picture. When choosing assets to invest in to secure your purchasing power and prosperity during retirement, precious metals and particularly gold and silver can help you reduce the risk associated with market fluctuations. This is not to say that precious metal prices will keep going up forever. However, your portfolio is most certainly strengthened by having part of your investments in precious metals. Gold offers valuable protection against inflation and currency debasement or crisis, where as other assets such as stocks do not. If you learn how to invest in gold properly, you can take full advantage of the economic cycle we are in.
Don’t focus your portfolio on just one area, but ensure that you are taking advantage of precious metals to enhance your prosperity.
Money managers and investment professionals agree that devoting at least 10% of your investment portfolio to gold is a wise idea, and a safe option. If you are a more aggressive or competent investor then 20% or more should be invested, but as always there is risk involved. It all depends on what kind of investor you are, whether you enjoy volatile assets that have the potential for great gain and also great loss, or whether you invest for the long term.
When investing in gold, it is best to allocate a certain amount of money each month for purchasing gold, regardless of the cost of the commodity that month. Then as you purchase your gold you should do a dollar-cost averaging so that you know how much your gold has cost your per coin or bar. In this way you can build your profits slowly and steadily.
Investing in gold and other precious metals is a great choice for investors with a moderate tolerance for risks. As this strategy minimizes potential downsides.
Gold, silver and other precious metals offer great protection against the debasement of currency, financial crises, inflation and also act as an insurance for your investments. It only requires a decision of how you are going to invest in precious metals, to help you make positive steps towards a bright, financial future.
There are many ways that you can invest in physical gold. Jewelry, coins and bars are all excellent choices. When it comes to coins,
The American Eagle, Canadian Maple Leaf, American Buffalo and British Britannia are all excellent choices. These coins are IRS approved and can be stored at home in a safe or put in depositories. You can also store these at professional gold dealers, that act as custodians for your gold.
GOOD: This option allows total control of your wealth, and also allows you to buy from a wide variety of dealers at low premium levels and guarantees the highest levels of purity. Also perhaps more importantly it means that your wealth is outside of the government system, and in the case of an economic collapse you are guaranteed to have true wealth that is not subject to currency rates.
BAD: It is more difficult to trade physical gold that ETF or paper gold. Also if you opt to store your gold at a reputable custodian, there may be additional storage costs.
Gold ETFs are known as `Exchange Traded Funds’ or generally termed `paper gold’. ETFs allow you to diversify your investment portfolio without having the associated risk of owning physical gold. When choosing an ETF your job is to make sure it is physically backed by gold, and that the price is as close to the spot price as possible.
GOOD: Gold ETF’s are easier to trade than physical gold as they are bought and sold like any other stock. You don’t need to worry over storage and security as you don’t have physical gold.
BAD: There is no physical ownership of the gold or other precious metals. During times of economic collapse this may well mean that your ETF’s are not backed by sufficient amounts of physical gold and as a result your investment might not work out. Also ETF’s have a tracking error that may well mean that there are some differences between the price in the market and the price you pay / receive.
Exchange Traded Notes or ETNs are more like bonds that are issued by an institution. The ETN effectively acts like an `I OWE YOU’ from the issuing institution. Unlike ETF’s there is no `tracking error’ and this makes gold ETN’s very liquid in their ability to be traded.
If you do not wish to own physical gold, or are uncomfortable with gold futures, then ETN’s may be best for you.
You also have options to choose, leveraged or normal, and also long or short acquisition of gold ETNs.
GOOD: The gold ETNs act as a promissory note to pay you the underlying value of the ETN based on the performance of gold at the time of sale.
BAD: The risk associated with ETNs is basically that the issuing institution (such as a bank) may go bankrupt, and with it goes your investment. In times of economic crises banks such as Lehman Brothers and Bear Sterns disappeared and with them went the ETNs that they issued.
Gold Mining Stocks
Some investors choose to invest in the mining companies of gold and other precious metals. This can be a great opportunity to magnify your returns as gold mining companies, just like any other company can perform greatly and the value of their stocks rise far faster than the physical gold price.
This also enables you invest worldwide in gold, silver and other precious metals mining companies.
GOOD: The trading of gold mining stocks is easy, just like any other stock. You have no need to physically store your gold.
BAD: You have no physical ownership of gold so that in an economic collapse you will only be able to receive fiat currency for your investment. Researchers at Yale also discovered that gold mining stocks are not a true reflection of the price of gold and as a result are susceptible to rise and fall of the stock market just like any other company.
Gold Futures / Options
If you are investing just for the short term, gold futures and options are possible choices. Large institutions use these for hedging purposes against the underlying price of gold. This choice also allows you to take advantage of the derivative market.
GOOD: These are very easy to trade and do not need to be stored.
BAD: You have no way of knowing if they are backed physically and there is no protection should the market crash.
If you are investing for the long-term, choosing to use an Individual Retirement Account (IRA) is a superb way to grow your wealth. If you open a self-directed IRA you have freedom to add physical gold and silver to your retirement account and provide security for your future.
As long as the coins, bars and bullion you choose meet the purity conditions laid down by the IRS then they can be added to your Gold IRA. Setting up an IRA is quick and easy, and the IRA can be rolled over from your present retirement plans.
GOOD: This is a tax-free investment and gives you real protection against inflation, devaluation of currency and economic crises.
BAD: Trading is not easy and you will have to physically store the gold.
When deciding to invest in gold, it is important that you choose and understand the best option for you. Reading through the good and bad points and making a decision is the first step towards building your prosperous and secure future