You’ve probably heard it said over and over again that it’s wise to invest in precious metals like gold and silver. However, the truth is that precious metal is not a simple, one and done investment. Many variables must be considered at the time of purchase.
Investors are generally split on whether or not to invest their funds into precious metals. Some investors do not trust the global economic system and their portfolio is almost entirely made up of precious metals. Others believe that no portfolio should have gold or silver allocated.
To help you decide, we created a guide with advice on ways to invest in precious metals, including some of the pros and cons. This guide focuses on physical precious metal investment, although we will cover other types, of investment, such as exchange traded funds (ETFs), later on in our series.
Pros:
Overall, metals such as gold or silver hold wealth effectively in the long-term, although they can get very volatile. Some additional benefits are:
- No credit risk.
- They maintain their global purchasing power over a long period of time through currency devaluation or inflation.
- Precious metals do not correlate tightly to bonds, stocks or real estate.
Cons:
- Commodities like precious metals produce no cash flow and their value can change unpredictably.
- Transaction costs are associated with precious metal investment:
- If you buy physical gold, the company in the middle makes a profit. They buy it at wholesale price, convert it into investment-grade gold, and sell it at retail price.
- Shipping, security and storage costs exist along with the risk of theft or loss.
Making the Choice to Invest
It’s easy to make the case for or against investing in precious metals. However, case studies do exist proving investing in a precious metal could help you through a financial crisis. For example, during Greece’s economic crisis, bank withdrawals were limited to 60 euros a day. Greeks would have to wait long lines to withdraw petty amounts of cash. In cases like this, having some gold stowed away can be incredibly helpful.
One notable advocate of gold investment is Kevin O’ Leary, a successful Canadian businessman best known for his appearances on Shark Tank. O’ Leary invests 5 percent of his portfolio in gold bullion and ETFs. When gold increases in price significantly, he sells some. When gold diminishes in value, he buys some more.
If you do wish to invest, you can buy physical gold bars from a refinery like Manhattan Gold & Silver. Regardless of the provider you choose, make certain you are buying your precious metals at a reasonable price and purchase secure storage for it.
In Part 2 of this series, we will look at holding methods for precious metals.
