Gold is a wise investment for many reasons. It’s been a store of value for centuries, prized for its reliable returns, long-term price stability and ability to offset losses from riskier investments. But, as with any investment, it’s important to know what you’re getting into so you can get the most from it.
While many investors have a basic understanding of how assets like stocks work, gold investing can be confusing to those just beginning to explore it. To make things easier for you — and help you take full advantage of gold’s benefits — we’ve gathered some common mistakes gold investors make so you don’t make them too.
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Gold investing mistakes to avoid
Get the most from your gold investment by avoiding these common mistakes.
Only considering physical gold
There are many ways to invest in gold, from IRAs and ETFs to futures. Physical gold, such as coins and bars, is only one option, and it may not be the best for you.
For one thing, you must find a secure place to store your gold and pay for both storage fees and insurance. Plus, physical gold is taxed at a higher rate than investments like gold stocks and ETFs. Because the IRS considers physical gold a collectible, it’s taxed at the collectibles rate of up to 28%. Gold stocks and ETFs, on the other hand, are taxed at between 0% and 20%, depending on your tax bracket.
Keep all of these things in mind when deciding which type of gold investment is best for you. Then, learn more about investing in gold by requesting a free gold investors kit here.
Buying too much
Gold can be a valuable part of any portfolio. Thanks to its reliable returns, dependable long-term performance and low correlation with other assets, it can help diversify your investments, protecting your bottom line from losses suffered by riskier assets (such as stocks).
However, you shouldn’t put too many of your investment dollars in gold. Experts recommend keeping a maximum of 5% to 10% of your portfolio in gold to enjoy its stability while still allowing room for higher-risk assets to generate larger returns.
Letting your emotions sway you
One of the biggest perks of gold is that it can provide solid, predictable returns over the long term. While you can lose a huge portion of your investment overnight with stocks, gold has proven effective at riding out economic turbulence and preserving wealth despite market ups and downs. But in order to reap this benefit, you must hold onto your investment for years (if not decades).
Don’t give into panic and sell everything if gold prices drop temporarily. It could actually be a prime time to buy gold. Similarly, don’t overinvest in gold simply because it’s currently a hot commodity. Stick to your investing strategy and let gold do its job by holding onto it long-term.
The bottom line
Gold provides many benefits, but you must know how to invest in it smartly to enjoy them. Do your research, ask yourself these important questions and don’t hesitate to speak with a financial advisor for customized recommendations based on your personal budget and goals.