Precious metals have protected and grown fortunes for thousands of years. Precious metals are a unique investment because central banks can't print them, and they have never gone to zero. Most people know that precious metals are a good idea but still need to learn how to invest in precious metals successfully.
Most people want to deal with a reputable dealer, like the U.S. Gold Bureau, and don't want to overpay. Dealing with a reputable dealer is the starting place for not overpaying. Mistakes can be expensive, and there are some common ones to avoid. The recommended approach is speaking with an expert at the U.S. Gold Bureau to get all your questions answered and receive guidance to avoid overpaying. Of course, there are strategies beyond this article, but avoiding some common mistakes can fast-track your success.
1. Thinking all metal is created equal
Most people make the mistake of thinking that all roads lead to Rome. It may have been true once, but the world is very different now. Different roads will take you to other places. The same is true with precious metals. Some metals will be better for short-term liquidity, and some for long-term protection and growth potential. In other words, it is possible to diversify your precious metal strategy to layer your protection.
There are four precious metal asset classes: Bullion, Investment Coins, Pre-33/Pre-65 Coins, and Rare coins. Each asset group behaves differently and accomplishes different portfolio objectives. With each asset class added to your portfolio, another layer adds more protection. There are four unique precious metals to invest in, gold, silver, platinum, and palladium. Each metal you invest in is also a layer of protection, meaning you can create 16 layers of protection if you acquire each asset in every metal. The mistake most people make is thinking bullion alone will keep their portfolio safe. Bullion is the foundation and belongs in every portfolio. However, it takes more than a foundation to build a house. Diversification is needed to build a healthy precious metal portfolio.
2. Believing that Paper and Metal are the Same Things
People invest in precious metals for different reasons. Still, one of the most common things people say is that they want diversification. Diversification is a fancy way of saying the assets will behave differently. Stocks and bonds are different asset classes because they tend to behave differently in most markets. However, they share a paper DNA, so they will both behave similarly in the most extreme market conditions.
Some unscrupulous financial advisors, who sell paper products, try to convince people that precious metal ETFs and miner stocks behave the same way as owning physical metals. Nothing could be farther from the truth. Their values will indeed be associated with the market price, but that is where the similarities end. ETFs and miner stocks will have the same market risks as the entire stock market, which can vanish in a moment. Owning more stocks is not a way to diversify away from stocks.
Some people erroneously believe that owning a precious metal ETF is a claim on physical metal. It isn’t. There are only twelve banks in the world that can claim the physical metal connected to the ETFs. The SEC rule states, “Only Authorized Participants (member banks), not individual shareholders, can redeem shares from the Trust.” Also, every redemption contract is for 100,000 shares.
Even if individuals could redeem, which they can't, it would cost around $20 million. Suppose you are fortunate enough to afford $20 million in precious metals. There are much better ways to accomplish your precious metals goals than the risky and over-leveraged paper market. The Texas Bullion Depository can safely store all your metals without the risks of the paper market for a fraction of the cost.
3. Trying to Time the Market
Some people delay buying precious metals, trying to time the market. However, trying to time the market is usually a fool’s errand. The problem with trying to time the market is that it is an investment fallacy. The fallacy is expecting the market to behave as it always has, but history is rife with market surprises. So, like car insurance, you want to have some precious metals before tomorrow. Who knows what tomorrow holds? Precious metals are the counterbalance to market surprises.
Indeed, bullion prices constantly fluctuate, and sometimes there are attractive price dips. However, prices can also climb quickly without ever touching the desired price again. It works both ways. The best strategy is to use the dollar cost average. Sometimes, you may pay a little more, and sometimes you will pay less. When the dips happen, stock up. You could buy a little less if there is a massive spike upward. However, keep buying at regular intervals until you reach your target allocation. You will be glad you did.
4. Investing the Wrong Amount
Newbie investors ask a hard-to-answer question. It may sound like, "I want to invest $50,000 in precious metals. Do you think that is a good amount?" It depends. There is not a one-size fits all approach for determining how much to invest in precious metals. Every situation is unique, and each person’s goals begin from different starting places. For some people, $50,000 is way too much, which is far from right for others. For some people, $50,000 is the portfolio Goldilocks zone.
Precious metals should be a part of an age-appropriate, balanced portfolio. Most people determine the amount to invest in precious metals by deciding how they want their portfolios allocated. Most precious metal investors put 5-20% of their portfolio into precious metals. Let's consider three different investors with different net worths and risk tolerances.
Investor A has a net worth of $175,000 and wants to put 20% into precious metals. The number should be around $35,000 for Investor A. $50,000 is too much to put into precious metals.
Investor B has $2.4 million in assets and wants 15% in metals. 15% would be $360,000. $50,000 is too low.
Investor C has assets totaling $500,000 and wants 10% in metals. $50,000 is perfect.
5. Doing Nothing
Sometimes, the worst possible mistake people make is becoming paralyzed with fear of making a mistake. Many people never pull the trigger to make their first purchase. They want to read another article or speak to another person but never get started. Becoming a precious metal expert takes years of being around the industry. Most people don't want to become precious metal experts. Instead, they want to know enough to accomplish their goals and avoid common mistakes. When you work with the U.S. Gold Bureau, a precious metal expert is assigned to you, and you can borrow our expertise free of charge anytime.
The only way to truly learn how it works is to get started. You don’t have to start with a back flip off the high dive if you don’t want. Instead, it is okay to dip your toe in the water with some gold and silver bullion. Many people like buying an ounce or two of gold bullion and some silver bullion rounds to start and learn how it all works. Your knowledge and confidence will grow as time passes, building your precious metals portfolio.
The most important thing is to get started. The U.S. Gold Bureau has no minimums or maximums for order size. Whether you want to start with $100 or $100,000, acting toward your goals is the most important thing. All orders above $99 include free shipping and the precious metals industry's best buy-back guarantee.
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