In A Guide to Precious Metal Investment: Part 2 – Precious Metal Holding Methods, we looked at the different methods to consider holding precious metal investments. Once you’ve bought and decided on a holding method for your metals, it’s understandable to be proud of finally taking action and excited for a return on your investment. However, amidst all the opportunities and hype, it can be easy for precious metals investors to get sidetracked and make mistakes.
This final part of our guide focuses on 4 precious metal investment mistakes you should try to avoid.
Mistake #1: Unrealistic Expectations
A big mistake you can make as a precious metal investor is being impatient and chasing prices in hopes of hitting the big time. Many investors who behave like this invest in precious metals as a “get rich quick” scheme, when it is actually a long-term proposition. They also usually believe that metal prices can only increase in value and that investing success is a given.
You should take the time to consider your investment goals and how you might achieve them over the course of years, not a matter of weeks or even months. If you expect immediate results, you might become like some investors who jump from investment to investment. This often results in them selling off their metals to invest in the “next big thing,” have it fail, and then end up buying precious metals back at significantly higher prices. By setting the right expectations and having a long-term plan, you can avoid this mistake from the moment you invest.
Mistake #2: Assuming ETFs and Physical Metals Are the Same
An error you could potentially make is assuming that investing in ETFs (Exchange Traded Funds) and physical metals are the same. If you think that owning an ETF share is the same as owning physical metals, you’ll be very disappointed should there come the time you want to withdraw your shares in the form of physical precious metals.
For example, as the owner of a gold ETF, you essentially only own a piece of paper (a promissory note) showing how many shares of the fund you own. However, you don’t actually own physical gold. The ETF you’ve invested in owns the gold, and you own a promise from the fund managers to pay back the values of the shares you purchased.
Major restrictions exist if you wish to redeem your shares for a physical precious metals like gold or silver. First, you must get special permission from the trustee of your ETF. Usually, only brokers and major institutional players receive this permission. Second, you can only redeem shares in batches of 100,000, which is roughly equal to $13 million today. Third, the ETF has the right to settle requests for metals in cash rather than the physical metal. This means even if you owned 100,000 shares and got the permission to redeem them, the ETF still might not give you physical bullion.
Mistake #3: Falling for Confiscation Scare Tactics
This is a mistake that could lead to you buying precious metals at a higher price for no reason. Many investors fall prey to scheming firms that bait them into buying antique coins for fear their gold or silver will be confiscated. Telemarketers often tell investors that old U.S. gold coins are not subject to confiscation, implying that modern gold bullion coins are. The truth is that no Treasury department regulation or federal law supports these claims. If you fall for this ruse, you could end up buying antique coins at marked up prices when you could have bought newer coins for the same price while still avoiding confiscation.
Note that this scheme is only one of the many that exist for precious metal investments. Regardless of how you decide to invest your money, research your field well to avoid falling for scams.
Mistake #4: Going All In
As an inexperienced investor, you could decide to invest all or a significant portion of your savings into precious metal investments. Big mistake! You should never invest all or a significant amount of your assets into any single investment. Instead, you should find out how much you can afford to invest and what your financial goals are. Before investing, you should follow the following steps:
1. If you have significant debt, you should first work to pay it off and secure three to six months of living expenses in savings.
2. Allocate a portion of your income to your portfolio regularly. This method of investment is called “dollar cost-averaging” and it works whether you are buying stocks, mutual funds, bonds, precious metals or any other investment. It’s recommended you speak with a qualified financial advisor to set up a budget and determine how much of your future income you should invest.
Planning Your Investment
Investing should always be a calculated process. If you do your research and create a realistic plan and budget, you can avoid many of the mistakes listed above. Failure to research and plan can lead to impulsive, misinformed investments and leave you vulnerable to scams from those looking to prey on investors.
If you’re interested in starting a physical precious metals investment, consider buying gold bars from a refinery like Manhattan Gold & Silver. Always make sure to take into account your financial goals and budget before making any investment. Make certain you are buying precious metals at a reasonable price and purchase secure storage for them.