Contract law has a principle known as Caveat Emptor, which roughly translates to “buyer beware.” This also happens to be a fitting principle for precious metals investors, particularly novice investors, because the world of precious metals is fraught with strategic mistakes and less-than-reputable participants.
With that in mind, here are three common mistakes that investors should avoid when investing in precious metals.
1. Investing for the Short Term
Too many novice precious metals investors treat commodity metals like a speculative asset. They have unrealistic expectations about how much their gold investment will appreciate in the short term, which, in turn, makes them more likely to commit unfortunate errors with their portfolio (such as frequent buying and selling).
The extraordinary growth of gold between mid-2007 ($650 per ounce) and late 2011 ($1,800 per ounce) — alongside that period’s terrible macroeconomic conditions — left many investors with the impression that precious metals acted like penny stocks, only with less risk.
This is not true and never has been. Precious metals are, and will always be, a long-term investment. Investors should use them to insure against severe economic risks, such as hyperinflation or government default, and to diversify other assets in a strategic retirement portfolio.
Consider these questions before investing in precious metals:
What are your investment goals? Gold (and other precious metals) are ill-suited for investment strategies that promise to deliver big, fast results. While many professional analysts and serious gold gurus expect that precious metals will appreciate in the future, that should not be taken to mean that metals prices can only go up in the short term.
What factors drove you to consider precious metals? Many investors consider gold or silver because they are concerned about macroeconomic conditions — the strength of the dollar, experimental monetary policy, government debt, or geopolitical conflict — and want to protect their financial future. These are all reasonable concerns. Other investors, unfortunately, choose precious metals because of promises about “the next big thing” or shiny marketing ploys.
Make sure you understand why you should pick precious metals and you will be much more likely to stick with your investment.
2. Not Acknowledging the Premium Charges
Precious metals investors may be very excited about their first purchase, but it is a mistake to let that excitement cloud basic consumer judgment. If you plan to invest in gold, treat gold just like any other commodity and make sure you are aware of the premiums that are charged for different metals.
Important: Do NOT forget about the metal’s associated expenses and fees
As far as the return on your investment is concerned, expenses are no different than premiums — expenses and fees make it more costly to obtain or maintain the precious metal, and, in so doing, they reduce the net gain you receive from the investment metal.
If you need more help, check out this guide on the best ways to invest in gold. It’s important that you protect yourself (and your wallet).
3. Ignoring the Tax Benefits of a Metals IRA
Once an investor makes the decision to invest in precious metals as part of a long-term, patient strategy, one of the biggest mistakes they can make is to ignore tax-efficient savings vehicles. The most common of these is the gold-eligible, self-directed individual retirement account, or “gold IRA.”
IRAs offer a few different tax benefits to U.S. savers — the most significant of which is tax-free growth on the value of an investment portfolio. An investor with a gold IRA can accrue decades worth of appreciation without paying any taxes until making retirement withdrawals.
You can read all about gold IRAs here.
Learn More. Contact American Bullion Today
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Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.