Is bullion the right investment for you? Assets like gold and silver bars and coins can be effective alternative assets to help you diversify your portfolio and protect your wealth, but investing in bullion is not quite the same as your average stock or mutual fund.
Follow these tips to learn about bullion investments and how to successfully use them in your portfolio.
#1 Think Long Term
If you’re hoping that bullion will make you rich overnight, it’s time to readjust your expectations. First, you should understand that there is no asset on the planet that is a reliable way to get rich quickly. Otherwise, everyone would already be investing in it. If someone is trying to sell you that promise, walk away. The stories you hear about people making millions from crypto are only the success stories. What you don’t hear about are all the people who bought too late and lost a fortune.
Investing in bullion is all about avoiding risks. Gold prices have shown incredible stability over the long term. While gold does go through boom and bust cycles, those cycles tend to be longer than the stock market’s cycles, and prices have historically been inflation-proof, meaning they catch up again.
Bullion has been a highly effective asset for preserving wealth over decades. You invest in bullion because you’re thinking about the value of your wealth decades (or even generations) from now.
#2 Purchase Bullion Before Other Investors Panic
Many investors wish they could time the market. When you look at the history of gold or silver price performances, you can see how much money you would have made if you’d only purchased it a few years earlier.
Unfortunately, it’s impossible to predict markets and asset valuations. What you can do is invest in bullion with a long-term outlook. Looking at market behavior in the past, there are two things you can be certain about:
- There will be another recession. You can’t predict when, but economic cycles inevitably lead to recessions.
- Global recessions tend to drive up bullion prices, as gold and silver are widely regarded as safe-haven assets.
Knowing that bullion prices have historically been buoyed by long, global recessions, it can make a lot of sense to invest even when the economy is doing well and stock market returns are reliable.
This does present an opportunity cost: how much more money could you earn if you put that money into stocks? Balancing your portfolio is all about balancing risks. Those stock values can tumble, so if you aren’t planning on cashing out in the short term, some of your investments should go into more conservative, safe-haven assets like bullion. A move like that reduces your risks and should protect your net worth during a downturn.
#3 Learn How Premiums Work
Any time you invest, there are going to be costs involved. Service brokers charge 1-2% of the purchase price when you buy stocks on your own, mutual funds operate with an expense ratio of between 0.12% and 0.75%, and Exchange-Traded Funds charge small operational fees based on how actively they are managed.
Bullion has its own expenses as well. One of the most important costs to consider is premiums. These are built into the price of bullion bars and coins that you purchase and are usually a percentage of the spot price at the time of your purchase.
These premiums cover a number of expenses in the bullion supply chain, including the design and manufacturing costs of coins and bars, and the storage, insurance, and transportation costs of bullion dealers.
Coins tend to have higher premiums than bars. More care goes into their designs, which may be updated with each new issue by a national mint, and many bullion coins have advanced security features that ensure their authenticity.
Once you know the costs of bullion, you can make more informed decisions about how much and when to invest.
With these tips, you can optimize the role that bullion plays in your portfolio.
