When adding precious metals to an investment portfolio or retirement savings, investors view these as almost an “insurance policy,” protection for their wealth. That’s especially true of gold, boasting of being a “store of wealth,” holding its value steadily, occasionally growing in demand when times are troubled. Go here for a defining article on precious metals as a whole.
The asset value generally moves inversely from the market, particularly silver and gold, meaning if the stock market were to crash, these metals could possibly increase by a point or two and vice versa. Within the last few years, each precious metal has gained, including gold, palladium, silver, and platinum.
Investors will add one or more options at a small percentage, enough to diversify the holdings and offset risk presented by their more aggressive asset classes, a safe haven and hedge against inflation, resulting in a well-rounded, balanced, and complete portfolio. Should you invest in precious metals?
Consider the following suggestions on how to proceed when considering precious metals as an investment.
What Should You Do Before Investing In Precious Metals
Not everyone can invest shrewdly in precious metals. The recommendation is that your portfolio already be somewhat robust and that you have experience under your belt in the investment world. Being informed allows better self-management.
Investors often choose physical metal to hold in a precious metal IRA or self-directed individual retirement account. In order to self-manage investments, you need to be a relatively savvy investor educated in precious metals and understand the IRS regulations on self-directed accounts.
Working with a financial counselor or tax advisor for investment guidance is always suggested. An advisor will prevent overindulgence in precious metal investments.
The recommendation is to only hold roughly 10-15 percent of your wealth in precious metals to maintain a healthy investment balance. What should you do before committing to a precious metal investment? Let’s learn.
- Educate on precious metals and how you want to proceed with an investment
Whether you want to own physical gold, a tangible investment, or “paper gold,” an intangible investment, will be a decision to discuss with your financial counselor and one based on your personal objectives.
With physical metal, you will own the asset. A paper metal will be allocated to a fund operated by a financial institution. Placing the physical asset in an IRA is an option many investors choose due to the tax-advantaged savings.
Still, this option comes with IRS regulations that can make it a more complex choice. Fortunately, many legitimate, reputable precious metal firms are available to inform investors.
In addition, the self-directed IRAs are assigned specialized custodians versed in precious metals to ensure compliance with government guidelines.
- Take ample time in researching precious metals dealers
The suggestion is it’s easier to recognize the good precious metal brokers from those that are not so good. Scams are not necessarily rampant in the industry, but they do exist. They’re only readily identified if you know precisely what to look for.
When looking for reputable firms, some of the best will belong to these associations:
- ICTA – Industry Council for Tangible Assets
- PNG – Professional Numismatists Guild
You can check professional review sites like InvestingInGold.com for unbiased pros and cons on legitimate gold firms. And if you consider a self-directed IRA, often the custodial service you work with will be able to recommend a resource they use when working on precious metal accounts.
Not only will the custodian be able to suggest a legitimate broker, but the entity will have a list of storage depositories where you can keep the physical commodity after purchase.
Whether you put the physical metal in an IRA or not, you’ll want a safe, secure, and insured facility to hold your asset. It’s often not safe to keep gold or other options at home in a safe due to the threat of theft.
Depositories do have annual fees, but with that investment comes peace of mind until you decide to liquidate.
- Investment advice is limited to a financial or tax counselor
When investing in physical precious metals to hold in an IRA or even ETFs to hold in an IRA, the specialized custodial service or the gold firm that you work with for your transactions is not there to provide any sort of investment, financial, or tax advice.
These details are limited to a financial or tax counselor. A self-directed IRA means that you, as the investor, will make investment and financial decisions. If you make an error resulting in penalties and fees, these are your responsibility. The custodian and the gold firm bear no part of the burden for non-compliance.
That can mean buying a metal that deems IRA ineligible. When you purchase bullion bars, coins, and rounds that don’t qualify for holding in an IRA, like rare coins or collectibles, it will result in tax repercussions and potentially other fees damaging your overall investment wealth.
This is a primary reason when choosing precious metals; it’s first wise to educate on the asset, including the different ways you can invest, what’s involved, the role the IRS plays, learn their regulations, and how self-directed IRAs work if that’s a consideration.
There’s too much to lose when you go into investing uninformed. Go to https://thebossmagazine.com/precious-metals-ira/ for guidance on where to invest precious metals.
- Remember to remain diverse with your portfolio
It can be easy to get carried away when investing in gold and other precious metals. It can’t be stressed enough that holdings in a portfolio should remain diverse, allocating a small percentage to precious metals.
The reason for looking for a small allocation, like roughly 10 percent, is that metals such as gold offer unique risks to the investor, one of which is the conservative nature of the investment.
It’s a safe bet, meaning it’s unlikely that it will crash or drop to 0, but it will also not pay you dividends or interest. It holds steady. When times are troubled, there are occasions when demand will increase, and the price point will rise. But to see significant gains is unusual.
It’s a long-term investment that buyers will watch grow and then sell when it hits a specific point where they’ll see a decent profit. That’s what makes precious metals investments beneficial for retirement.
Having too much will stagnate a portfolio, preventing a significant accumulation of wealth at a rapid pace. That response is typical for an aggressive asset, like some forms of stocks.
Of course, these are incredibly risky holdings since they correlate heavily with the stock market. That means when the market crashes or the economy is in a downward spiral, the portfolio sees a loss.
When you maintain a foundation of 10 percent conservative metals surrounded by aggressive, riskier stocks, a healthy balance is created, a complete portfolio ready to accumulate wealth steadily and prepare you for a successful financial future.
Final Thought
Does this mean you’re ready for a precious metal investment? Not yet. You will have your personal financial goals and objectives that need to be overseen by a financial advisor to establish a strategy specific to those needs.
A 10-15 percent precious metal investment may be too aggressive for your circumstances. You might do better with 3 percent. Investing and finances are personal and different for everyone.
This is why you should educate yourself on the investment you’re interested in to see how it will affect your specific situation and proceed with your advisor’s guidance.
