7 common mistakes to avoid when investing in gold
Over time, people invest their money in various avenues to improve finances for themselves or their family members. One popular type of investment includes gold, which is the world’s currency of those today. There are several opportunities to invest in gold, including bullion, futures, mining companies, mutual funds, and jewelry. However, some people make mistakes when investing in gold, which could be detrimental to their finances. Here are seven common errors that one should avoid.
Poor investment timing
One of the most common things to avoid when investing in gold is making decisions based on emotions and strategy. It includes buying physical gold only when a significant economic or geopolitical crisis erupts, which makes the price jump. But, the approach might not always work because it assumes that gold is solely a crisis commodity. However, as part of a diversified portfolio, gold could be essential to an individual’s long-term investment strategy. Doing so could offer protection against inflation, currency fluctuations, and other financial uncertainties. One could miss out on potential gains that could have come from investing in gold beforehand, such as buying it before a crisis and adding gold to savings regularly.
Lack of research
Research helps set the groundwork for just about anything, including gold investments. For example, several people might buy gold bullion from a reseller without proper research. But this might lead to potential risks. For instance, if a gold reseller asks for money upfront when buying gold online, it is a major red flag. The purchase lacks transparency when the seller hesitates to provide all the details about the sold gold. Reputable sellers are transparent about the purity and quality of the gold and the fees associated with the transaction. One could research by speaking to multiple resellers to find trustworthy ones before investing in high-quality gold products.
Ignoring gold purity
One should never buy gold without checking its purity, which is the pure gold in the product. For example, if a gold coin is made of 24-karat gold, it is made of 99.99% pure gold. However, an 18-karat gold coin usually has only 75% purity; the rest is made of other metals. This is important because to be considered an investment, the purity has to be at least 99.5% and higher. While the purities below are great for industrial use, they won’t work for investments.
Making only short-term investments
When purchasing physical gold, it is better to take the long-term approach. The profit depends on the investment strategy and goals. While speculating the price of gold is possible, the investment should not be short-term because of its historical price fluctuations and long-term appreciation trend. Moreover, one has to consider the fee applicable to purchase the gold. Before selling, one should wait for the appreciated value to cover the initial cost.
Not considering other gold products
Rookie investors usually buy only one type of gold product, like gold coins, to play it safe. But to be more cost-effective, one should consider other options like gold bars because its production requires less money, craftsmanship, and time than a gold coin. But if one wants to collect rare coins, gold coins and collectibles are the better choices. They are easier to sell in small amounts because of their size. One should determine the best strategy based on their individual investment goals.
Not keeping track of investments
Many gold investors diversify their gold investment portfolio, which includes buying different assets within asset classes. It helps reduce risk and balance their portfolio between risk and safety. However, after the initial purchase, one might forget to check if their portfolio is balanced and well diversified. Sometimes, investors make excessive investments and put their portfolios at risk. So, even after a purchase, one should constantly monitor investments to ensure they are balanced.
Confusing spot price with total cost
Spot price refers to the value of one troy ounce of pure gold bullion, and many investors confuse this with the total cost of the product. Regardless of which type of gold product one buys, one should expect to pay an additional amount over its melt value in gold. The final price may cover the manufacturer’s cost and offer the distributor some assurance to help make a reasonable profit.
