Interested in Gold Investments? Here are Five Things To Know
- (Photo : Clayton Richard)
If you've ever spent time doing any type of investing, then you're already well aware the stock market has a tendency to be a bit volatile at times. Sometimes, investing in other things-like precious metals-is a good way to hedge your bets and buffer your portfolio with a significantly less volatile investment. Gold aptly meets this criterion, as it is generally considered a safe investment due to its consistent value and low volatility. Humans have been saving, trading, and investing in gold for millennia. It's one of the best ways to make a mark without taking a significant risk. There are plenty of good reasons to invest in gold, whether you're using it as a first-time investment or simply as a means to diversify your portfolio. Here are five things to know about investing in gold.
Gold Can Come In Different Types
Gold is an incredible, versatile precious metal. Some investors may want to check out gold stocks (standard stocks that primarily focus on gold), gold bonds (government securities denominated in gold), exchange-traded funds, and gold mining futures (where you pay a seller a certain amount for a particular quantity of gold at a later date). Then there's physical gold, which includes most of the common types of gold in which people typically invest. Within the realm of physical gold, you have coins, bullion, bars, and jewelry. Jewelry can vary in quality but is fairly easy to store and sell. Gold coins are pretty reliable (sometimes more so than stocks or real estate), but they require some research and assessment to determine if you're getting the best value for your investment dollars. For the best in what physical gold has to offer, you may consider investing in a one troy ounce gold bar from a reputable gold dealer.
Stocks Are Different Than Physical Gold
Stocks differentiate themselves from physical gold in a few ways, other than the obvious lack of a physical coin, bullion, or bar. First off, physical gold requires the purchase of an actual piece of gold that you then must store in a safe place and protect. Threats like theft and natural disasters may play a role in how you choose to keep it safe. Conversely, gold stocks are like any other stock you might choose to invest in. As such, they come with the same risks any other stock light has. So it's always best to invest carefully when choosing your gold investment strategy. Gold stocks might be exchange traded funds, gold bonds, gold certificates, or other types of stocks associated with a strong focus on the precious metal.
You Need A Reputable Gold Dealer
As with anything in life, finding a reputable agency to do business with is critical. This is especially prudent in the case of investing in precious metals. There are always bootleggers and counterfeiters out there looking to take advantage of someone who doesn't quite know what they're doing or what to look for. This is why it is so important to find a reputable dealer from which to acquire precious metals. The last thing you want is a gold-plated piece of copper when you purchase a gold bar! A letter of authenticity and research into the reputation of the dealer is almost essential when buying physical gold. It's also a good idea to have any gold appraised or assessed to ensure it is actually gold. Taking a little bit of responsibility for yourself and doing your homework will help you avoid being scammed or going home with something that has no value whatsoever.
It's Taxed At A Different Rate
The downside of making money on any investment is the inevitable taxes that follow. For those of us who do pay taxes, it's key to understand that gold is taxed at a different rate than other investments or income. When investors sell off gold, or other precious metals for that matter, they can be subject to the dreaded capital gains tax. Per the IRS, the capital gains tax includes:
"Collectibles include works of art, rugs, antiques, metals (such as gold, silver, platinum and palladium bullion), gems, stamps, coins, alcoholic beverages and certain other tangible properties."
This means that these items are taxed at 28% if they're held for a year. If you hold it for less time, it's subject to a smaller rate. Taxes can be complicated, and don't make owning gold too much of a burden to make a decent return. It's actually quite the contrary, as you only fall into this category if you're making a profit on the sale.
The ROI Can Vary
According to Statista, the rate of return on gold investments tended to fluctuate considerably over the past few years. But despite these fluctuations, it consistently rebounded and generated positive returns. There are myriad factors that come into play to determine the ROI of your gold investments, so watching the market and choosing your investment strategy wisely is crucial. Whether it's physical gold, which is beloved for its ability to act as an inflation hedge and safety net of sorts when trouble strikes or other types of Investments like ETFs (which are popular for their high liquidity), your ROI with a gold investment is always going to vary-but will still likely be amazing in the long run.
