Investing in gold and other precious metals has become a very popular investment over the past several years. People who are looking to invest in this area, however, should take some precautions. Historically, investing in commodities like precious metals has always been considered a high-risk investment.
Before investing your money in precious metals, take some time to think about the following questions.
1. How much of your portfolio will you invest?
As a general rule, you should try to spread your money out among a variety of investments. While the exact allocation or distribution of your assets will be dependent on factors such as your age, age at which you want to retire, net income, total amount of money you currently have invested, and your risk tolerance, it is important to make sure that you do not have all or most of your assets heavily concentrated in one area.
Because of all of the advantages and risks to investing in these commodities, financial advisors usually recommend that potential investors keep a maximum of twenty percent of their total portfolio invested in gold, silver, and other similar metals. Investing more than this portion of a portfolio is usually thought of as being too risky for most individual investors.
Unfortunately, many people tend to ignore this rule and invest everything they have into commodities. This can lead to you losing your life savings if there is a sudden downturn or dip in the precious metals market. If you’re considering this investment, be sure to keep the majority of your money in other investments.
2. How will you come up with the money for the investment?
Deciding what money to invest is as important as deciding where to invest it. Some people choose to invest in precious metals within their retirement plans at work. This means that they are using the money they would have otherwise put into other investments in the precious metals market. Because it is inside of their retirement account, however, they will need to plan on keeping the investment for a long time.
Other people decide to invest the cash they have or take on unsecured debt, such as a credit card, to get the money to invest. If you choose to do this, make sure that you are investing money that you can afford to lose. Remember that the market can vary a lot, making it a less than ideal place to put money that you may need access to right away.
Taking out a loan in order to invest in precious metals is very risky. In addition to having to pay back the principal, you also have to make sure that the investments nets enough to pay back the loan and make a profit. Take out a loan only if you are very experienced with the commodities market.
3. How long do you plan on holding on to your investment?
While holding onto precious metals for the long term (that is, more than five years) has historically turned a profit for most investors, it is entirely possible to lose a significant portion of your principal by investing in precious metals. While the fact that gold and silver have never traded at zero on the market is touted as proof that this is a safe investment, the truth is that it only means that an investor will probably be able to hold out during a price drop and wait for the price of their investment to come back up.
Nonetheless, investing in the precious market over the short term can be very risky. It is next to impossible to predict what will happen to the price of gold or silver from day to day.
Be sure to carefully consider your overall financial situation before making the decision to invest in precious metals. Also, be sure to research the investment thoroughly before buying.