No doubt about it, there’s a modern-day gold rush going on. Precious metals companies are running ads on TV and radio and they’re sponsors of an unlimited number of podcasts. The message is always the same—Buy! Buy! Buy! before the world comes to an end. Have precious metal in hand so you can survive the apocalypse.
Don’t get me wrong. Owning gold or other precious metal is not a bad thing, But it should be approached like investing in anything else, with caution, research and an eye to your overall investment strategy. Here are some nuggets that may help.
Don’t pay too much
When you buy physical metals, you’re paying a premium over the spot price. The premium covers the cost of paying a dealer to buy it for you. First-time buyers are notorious for paying too much because of excitement and lack of experience and knowledge.
Compare premium rates from several reputable dealers. You may be able to accomplish the same thing by using lesser-known but just as pure options like generic silver rounds, which usually have lower premiums.
Another possibility is investing in precious metals through specialized retirement accounts. For example, you can’t buy gold in a traditional IRA. It has to be purchased in a specific type of IRA called a Gold IRA. You may pay a lower premium when purchasing through a Gold IRA. Additionally, you have quality assurance because the IRS requires gold held in a Gold IRA to be 99.5% pure. There are similar purity requirements for other precious metals held in God IRAs.
Have a plan
It’s sad but true. Lots of precious metals transactions are emotional. People buy at the peaks because they don’t want to be left out, and when prices go the other way they do panic-selling because they’re afraid.
To avoid some of those emotions, have a plan. Are your objectives long-term or short-term? Are you buying for immediate profit or long-term diversification of your portfolio? One strategy may be dollar-cost averaging to smooth out the market roller coaster.
Keep it safe and secure
If you take possession of the physical metal so you can run your fingers through it from time-to-time, how will you keep it safe from possible theft or damage? There are a couple of schools of thought. For smaller amounts, use a bolted-down home safe. For large amounts, consider a bank deposit box or dedicated depositories that offer security, insurance, and sell-from-storage options. If you’re going to keep it at home you may need to buy additional insurance. Most homeowner policies don’t cover precious metal investments.
Don’t forget taxes
In the event you sell some of your physical metals, there are tax implications just like selling any other investment. In fact, metals are considered collectibles in the U.S. and can be taxed at a rate as high as 28%. If you hold precious metals for more than a year, any gains from selling are considered long-term capital gains. If held for a year or less, gains are short-term and taxed at your ordinary income tax rate. Keep accurate records of purchase prices, dates and related expenses to you can prove your cost basis to the IRS.
Don’t buy too much
Let’s admit it, buying gold, silver, platinum or palladium feels cool and that emotion can cause you to buy too much, which, in turn, throws off the asset allocation of your overall portfolio. Figure out what percentage of your total portfolio should be allocated to physical metals. Having too much allocated means you could win big or… lose big. Proper diversification isn’t necessarily glamorous, but it can save you from a lot of heartache.
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at info@alhambrapartners.com.
