Gold has been a valuable resource for thousands of years and is still a robust investment today. Many investors usually opt to get exposure to gold through exchange-traded funds (ETFs), futures, and mutual funds. But if you’re looking to diversify your portfolio or hedge against inflation risks, physical gold can be a great option.
If you want to learn more about investing in physical gold, getting in touch with a precious metals broker, like Goldco, would be a good call! They’ll walk you through precious metals IRAs, rollovers, and buying and selling physical gold. And if you’re unsure whether they’re the right company for you, Goldco Reviews like this one may come in handy!
Well, let’s get right into it! Here are 5 things you need to know before investing in gold.
1. You may have to pay a premium when you buy gold
Gold is usually sold at a premium or at a seller’s markup. This premium may come from distribution, manufacturing, or other costs associated with the production. For this reason, gold that requires more labor tends to have higher premiums.
At the same time, it may take a while for you to realize any gain since you need to overcome whatever premium you paid to make a good profit. So, before you decide to put your money in gold, make sure you understand the costs, from premium, and storage, to tax charges.
All of that should help figure out whether gold fits your portfolio needs. But these shouldn’t keep you away from buying gold, it’s simply good advice to be aware of the costs of putting your money in precious metals investments.
2. Physical gold comes with a collectibles tax rate
One of the best perks of investing in gold is the benefit of getting a favorable tax rate. This is because long-term capital gains are charged with lower taxes than marginal rates.
But you should know this doesn’t apply to physical gold. When you sell gold coins or bullion, you’ll have to pay a capital gains rate, which is capped at 28% for long-term assets. If you decide to sell some of your gold, you should be aware of taxes and prepare accordingly.
3. You can get scammed with gold certificates
Gold certificates or “paper gold” can make your investment process more efficient. But you should know you don’t actually see or get to hold the gold, and your only evidence is paper.
Scammers will be out to get you, especially during economic turbulence. Beware of those who claim to sell gold certificates during these times. More importantly, if the company is new and only has several reviews from clients.
If you choose to invest in paper gold, verifying the broker’s reliability should be your priority. Chances are, the company you’re working with might have already sold the same gold multiple times!
4. How gold stocks are different from physical gold
Another popular means of gaining exposure to gold is investing in gold stocks. Keep in mind, though, that the shares of stocks are not only affected by gold prices but are also correlated with the current profitability and expenses of the company you’re investing in. That means you may still be susceptible to similar market risks as with any other stock. Depending on the situation, your gold stocks might go in the opposite direction or fall in value when the market is down.
5. The drawbacks and risks to investing in gold
Like any other investment, there are some drawbacks and risks to consider when investing in gold. One drawback of buying physical gold is the associated storage and insurance costs. Unlike stocks and bonds, a Gold IRA account, for instance, requires your metals to be stored at a secured depository facility which incurs annual storage and insurance fees.
The opportunity cost of putting your money in physical gold instead of stocks that distribute quarterly dividends or bonds with interest payments could be another disadvantage. Physical gold is not income-generating. So, unless you sell, you won’t get any money out of it. In addition, liquidating physical gold also requires shipment to a reputable dealer. If the dealer you’ve purchased from does not have a buyback program, you’ll need to find another dealer to purchase your metals.
Lastly, you must remember that there’s always a risk attached to your investments. While we can track the performance of physical gold using historical trends, there is no guarantee for positive returns, and they may also go down in value. You should fully take note of these risks before committing to gold.
Gold is a good safety net when markets are in decline, but as with any other investment, there are certain factors and risks to consider. By understanding these key concepts, you can make an informed decision about whether gold is the right investment for you. Be sure to get in touch with a qualified expert if you’re confused about anything.