The Beginner’s Guide to Gold Investing
For centuries gold has always held a place of value in classic folklore and history. Although the gold rush has passed, gold’s worth is still going strong. Many that have started investing want to diversify their portfolio as much as possible to reduce their risk.
Simply saying you want to invest in gold isn’t enough. There are a mind boggling array of choices out there, each with benefits and potential risks.What you want to accomplish with your portfolio and how many years you have been investing will help you to narrow down your choices to what type of gold investment is best for you. This short guide will help you get started.
Why Gold is a Good Bet
Gold is always in demand. This versatile precious metal is used in a variety of products and industry. As you would imagine, jewelry makes up the bulk of gold’s use, accounting for 50 percent of the demand. Gold is used in many technology devices and medical applications including teeth filling. Much of it is also available in gold bars and coins.
What Determines Gold’s Value?
A brief economics lesson. The value of an item is determined by supply and demand. If the demand for hand sanitizer goes up, but there is not much stock on the shelves, the price will go up. Anytime demand is greater than the supply, up goes the value.Gold consistently maintains a steady demand to keep its value high, which makes it a sought after investment.
Even during economic downturns such as the recession of 2008, Gold didn’t lose its value. In fact, it increased in value by 25%. Economic uncertainty usually results in a loss of value for many commodities but it has the opposite effect with gold. Gold’s value increases with economic instability, giving it the coveted label of a safe haven investment.
Your First Gold Investment
So you’re ready to dip your toe into the pool of gold investment, but not quite sure where to start? You may automatically think of buying jewelry but it is better to go a different route. Jewelry does not hold value well unless the gold quality is over 10 karats. A 24 karat piece of jewelry is pure gold, not mixed with any other alloys, so that would definitely be something worth holding on to. Even so, there are better ways to invest in the gold market than scouting for jewelry buys.
Gold coins are very valuable but may come with additional fees. These fees cover the manufacturing process of the coin and any other additional fees from the coin dealer. If it is a collectible coin, it may have an even higher cost than its actual gold value. The best value for your money is to buy a gold bar or gold bullion. There is one caveat however, these can be expensive. There are different size gold bars, but a common weight is 27.5 pounds. When you think about how much nearly 30 pounds of gold might cost, you’re looking at a substantial investment. If buying a gold bar is not an option, much smaller gold coins will at least allow you to have some gold in your portfolio. If you are in a position to buy a gold bar you can purchase directly from the US Mint without any additional dealer fees tacked onto the price.You will want to keep your gold in a safe deposit box in the bank for safekeeping. Of course, liquidating a block of gold into usable currency is a more involved process than a simple stock sale.
Some investors use gold certificates from reputable companies like the Perth Mint to invest in gold. Be careful and make sure you ascertain the business is legitimate and not a scam. With a certificate the company stored the gold at its location instead of you handling the details of storing your valuable investment.
If you want an investment that has the feel of a stock, exchange-traded funds are a good choice. With this investment you do not have to physically handle the gold yourself. You purchase using a stockbroker from a company such as SPDR Gold Shares or another entity and this company will purchase the gold for you for a small fee. The company will purchase diverse types of gold such as bullion and coins, but you will never have to physically manage any of it. This process also makes it much simpler to convert to cash by having an exchange traded fund group handle the liquidation of your investment.
A more indirect way to invest in gold is through a precious metals mutual fund. These types of investments have the lower risk of a mutual fund and invest in gold production companies. By spreading the investment out over a few different mining companies within the mutual fund portfolio this lowers your risk.
Each of these options comes with a tradeoff. Certain factors need to be addressed before you make a decision on which choice is best for you. A good rule of thumb is to only place 10 percent of your discretionary money toward gold. The positive side to investing in gold, aside from its value, is that it offers diversification to a larger portfolio. When investing in gold, buy small amounts, or invest small amounts, over a longer period of time when gold is lower in value.
Whatever method of investment you decide, keep your portfolio diverse. Most financial experts recommend allocating no more than 10 percent of all your investments toward one particular type of investment. Start small and slowly increase your investment over time. Gold’s safe haven investment status is a desirable asset for any long term investment goal.