How do you start investing in gold? That’s a question we often get asked by new investors seeking to broaden their portfolios. On the surface, it’s a simple question: you invest in gold by buying gold, right? However, it’s not always that simple. Investing in gold can have surprising complexity to it, and as a result, it can feel intimidating to get into for new “gold bugs.” In this post, we’ll try to demystify the process of investing in gold: Why should you do it? How to get started? And when is a good time to invest in gold?
Why Should I Invest in Gold?
All the best investors know that it’s important to hedge your bets and diversify your investments. This can mean simply investing in different stocks or different industries if you’re investing in the stock market, but we prefer to think bigger: you should invest in different things entirely.
If you can afford to do so and have something of a nest egg built up, it’s never a bad idea to invest in different fields, from the stock market or government bonds to real estate and precious metals. The reason for this is that even if some of your investments start to perform poorly, the others will pick up the slack. Think of it as a form of insurance for your investments.
This is especially true for precious metals. Investing in gold, silver, and platinum is seen as more stable because these are things that have intrinsic value—a value that isn’t tied to international markets or fiat currency. As a result, when other monetary investments waver, people turn to gold.
Gold may not be a “silver bullet” (or a “golden bullet,” if you will), but it should be an important part of any diverse investment portfolio.
What Sort of Gold Should I Buy?
When people think about investing in gold, there are typically three things they’re considering: gold bullion (bars), gold coins, and gold stocks. Let’s take a look at these three individually:
Gold stocks are technically an outlier in the world of investing in gold, but they’re still worth mentioning. In this form of investment, you’re investing not in physical gold, but in companies that mine or otherwise exploit gold. The upside to this is that investing in gold stocks can be done through any traditional stock brokerage and is very convenient—and you never have to worry about physically losing your investment.
However, while these stocks are probably more resistant to the ups and downs of the stock market than other businesses, investing in gold stocks is not technically investing in gold. You don’t have a tangible investment; they do. So if you’re looking to invest in gold, just investing in gold stocks should not be all you do.
Gold Bullion Bars
Gold bullion bars are what you typically think of in movies—say, when an evil organization is out to rob Fort Knox. They usually come in various sizes (1, 5, and 10 ounces being the most common sizes) and are specifically minted for purposes of trade.
The pros of investing in bullion bars are that they tend to have far lower overhead costs than coins, and they’re much easier to store and keep. Bars also tend to be significantly purer than coins, which often have other metals mixed in.
However, there are several cons as well. For one, gold bars are typically very expensive. At time of writing, a 5-ounce bullion bar sells for around $10,000. Not everyone has that kind of money to invest right at the start. Bars are also much harder to liquidate if you need to sell, typically requiring some kind of independent verification, so these may not be the best if you may need to cash out soon. However, gold bullion bars are worthy additions to your portfolio.
Gold coins are exactly what they say on the tin, so to speak. They’re coins made out of gold. These can come from different sources and mints, but nearly all modern gold coins will be stamped with a value, year of issue, purity, and weight. The many different sizes and weights of coins make them an appealing first investment with a low barrier to entry.
The low barrier to entry is one of the pros of investing in gold coins. Another is that they’re technically legal tender. This makes them much easier to liquidate when you’re looking to cash out. Gold coins can also be collectible or historical, which means their value might appreciate independently of the price of gold. For instance, if you have a Spanish doubloon from the Age of Piracy, it will probably be much more valuable than its actual weight in gold, right?
The downside to gold coins is that they’re sometimes not as pure as gold bars, and the minting process tends to have a higher premium: you’ll spend more per ounce of gold if you’re buying coins than if you’re buying bars. Unlike bars, which usually come with certificates, not all coins need to be certified, so there is sometimes an element of risk as well.
Though there is no such thing as a perfect gold investment, the value in investing in gold in any form is very high, and if you can diversify your investments, you should.
When Should I Invest in Gold?
Many intelligent men and women have tried to play the market’s ups and downs to maximize the value of their investment, but unless you have a true crystal ball, trying to predict where the market will go tomorrow is unlikely to pay off. Booms and busts will happen in any investment, but gold averages out to a net gain in the end.
If we had to pick general gold investment advice, it would be to start investing during times of stability and low turmoil. During financial crises, like the 2008 market crash, people turn to precious metals like gold, meaning the price spikes. You’re much better off investing during a stable period and reaping the benefits of the price going up during a chaotic time than turning to gold in the middle of a panic—remember, other people will be too.
To learn more about investing in gold, contact the experts at Swiss America today.