The (Wrong) Ways to Invest in Gold and Silver

In the last couple of years, gold and silver have been volatile to say the least. They’ve been up over the last few years, but in the last few months they’ve both dropped enough to alarm many investors. The experts typically take one of two extremes: claiming that we’re headed toward huge gold prices near 5k+ per ounce, or the other extreme that it’s just a bubble that’s going to pop any week now.

Because of the nature of gold and silver bullion in terms of investing, they’re a little tricky and different than public stocks, private equity, bonds or other traditional investments. In this post, let’s look at the wrong approaches to gold and silver that unfortunately trips up plenty of investors who have been bitten by the gold bug.

First, a few principles about gold that every investor needs to understand. To summarize, gold and silver are a horrible way to make money quickly, and should only be purchased for the extreme long term — not to flip or to provide an income.

Gold doesn’t provide income.

Gold coins don’t pay a dividend, earn an income, or anything else on a monthly or even yearly level. Gold is a tangible asset, meaning it’s value is only realized when it’s sold or traded to another person. This means that as a retirement investment, it can be extremely risky — you can only make money if you sell, and if you sell, you can still only make money if the price is higher than when you purchased it.

If gold is having a dip or a “correction”, then it essentially acts as a loss to your portfolio or at best is neutral while you wait for it to rise again. The difference between this and dividend stocks or other income earners is pretty profound — a dividend earning stock will pay an income whether the stock is up or down. Worst case scenario, you’re still earning from income-paying assets, providing a little more security for down markets.

Gold shouldn’t be resold instantly.

When you invest in gold coins or buy silver coins, you instantly lose a little money in the sense that selling the gold coins is typically more difficult than buying. Because of the nature of the bullion market, you can’t buy gold coins and then resell them to a broker for what you just bought them for — the broker wouldn’t make any money if that was the case.

Because of that, you can instantly lose 5-10% in up-front premiums when buying gold or silver bars and coins. This doesn’t necessarily mean it’s a bad investment, but it’s certainly something to consider.

In the end, people who are looking for fast profits with a day-trader mentality should certainly stay away from precious metals like gold and silver bullion. Gold and silver can be fine investments, but only for the long haul, and only if one isn’t operating from an income investing perspective.

Buy $5.00 Pre-1933 Gold Half Eagles from American Precious Metals Exchange.