Blue Mountain Finance

Mountain Fresh Financial Information and Advice

May 4, 2014
by Brian Blessead

The 3 Essential Fundamentals Of Precious Metals Investing

Whilst the current economic climate has been in a precarious state for several years now, past history has shown that one of the most robust asset classes that manages to retain and even grow its value these sorts of adverse conditions are the precious metals, particularly gold and silver. The main reason for this is the simple fact that these precious metals are always being sought after by investors the world over, searching for a stable and tangible ‘safe haven’ asset.

In recent years, acquiring and accumulating precious metals has become a simple and hassle-free process. Investors can purchase precious metals from their post-tax dollars and store their bullion themselves, or like many ‘mums and dads’ investors, they take advantage of more the tax-efficient method of purchasing their bullion using funds they have set aside in their traditional Individual Retirement Accounts or IRA. In this case, if they are pre-retirement age, the precious metals they acquire must be stored in a registered and authorized depository until they reach retirement age. This is a restriction that is enforced by the IRS and failure to comply with these regulations will result in penalties or additional taxes.

A gold vault in London

A gold vault in London

However way you decide to buy your gold, silver, platinum or palladium, there are 3 fundamental things that all investors need to be aware of before they decide to take the plunge and invest in any type of physical metal.

Diversify – But Not Too Much (Or Too Little)

One of the main reasons that investors include precious metals in their portfolio is to provide some diversification. Most investors, even today, have most of their portfolio consisting of paper-based stocks and shares. And since 2008 when the GFC hit, I bet there are millions of investors who now understand that this was a big mistake. For unlike these assets, gold typically moves in the opposite direction to the general stock market. So when the market goes down, gold goes up. It is this unique characteristic of gold, silver and the other metals that make them so useful.

But how much of my portfolio should be made up of physical metals? General rule of thumb is that you shouldn’t have more than 15 – 25% of your portfolio in precious metals. Anything less or more than this won’t make much of a difference if things go bad for either the stock market or the metals you are holding.

However, most financial advisors agree that precious metals should be kept for the long term. Like any assets, the price fluctuates, but over time precious metals have been shown to be extremely stable.

Use Tax-Efficient Precious Metals IRAs

As mentioned earlier, it is possible to acquire gold with pre-tax funds that you have been accumulating in your traditional IRA or 401K. Typical traditional IRAs like these are not usually setup to allow the purchasing and storing of precious metals, and the IRS has put in place a number of rules and regulations that restrict this type of investment. Investors will usually have to setup a special gold or precious metals IRA that is specifically designed for these types of investments.

The process itself can be quite complex, so there are many companies offering their services to assist investors in carrying out the process. These companies are experts in purchasing and storing precious metals and are fully conversant of the IRS rules and regulations. They can explain how a gold IRA works, the pros and cons of investing in physical metals and will answer any of your questions about precious metals investing.

Like most businesses, there are the good ones and the ones to be avoided at all costs. Make sure you do your research before deciding to do business with one of these companies. Visit sites like The Gold IRA Reviewer, which have done a lot of the essential research already and have ranked the top 10 companies to work with.

This site in particular has ranked each of the companies based on the fees they charge, attention to customer service and the testimonials that each of the companies have received from previous customers. The site also takes into consideration the reviews that have been submitted about these companies on consumer action organizations like TrustLink and the Better Business Bureau.

Take More Notice Of World Events

Perhaps the most important thing you should be doing to maximize the benefit of investing in precious metals is to take more notice of events that are happening around the world. These events can have some major effects on things like the price of gold. Opportunities may present themselves when certain events happen and the price of gold drops. Gold in particular has shown to rise in value during times of economic crisis. Since the 1970s, the US dollar and most other currencies have not been backed by gold and so have been prone to numerous swift and severe drops in value. Gold on the other has typically stayed true to form and usually rises in value.

So if you’re considering investing in the precious metals gold, silver, platinum and palladium, keep these key fundamental concepts in mind before you make the final decision to invest in some physical metals. Doing so will ensure that the decision you make will be a good one.

The video below covers the basic process of setting up a precious metals IRA.