How to Invest in Gold & Silver for Beginners
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Gold and silver have a monetary history associated with them, going back to early civilizations. They might not be the primary mode of the transaction today, but their value is still the same, with financial institutions worldwide still recognizing their worth.
You can still invest in these commodities since they’re considered to perform better during economic downtowns. However, many people, especially beginners, have no clue how to go about this.
You can invest in gold and silver as a beginner using the following methods:
- Buying the physical commodity and having it shipped to your address
- Investing in Exchange-Traded Funds (ETFs) by buying shares from a stockbroker
- Buying shares of mining companies
They’re all viable options, but they carry different risks.
That’s not all, as you still need to know the investment options in detail and the pros and cons of investing in gold and silver, which you will learn if you read on.
Tips to Invest in Gold and Silver as a Beginner
Precious metals such as gold and silver have intrinsic value and have been seen as valuable commodities throughout human history. They have been used as money to facilitate the transaction and have an aesthetic appeal.
Although gold doesn’t have much industrial application, it has grown in value, over 4000% growth in the last 50 years, which is better than many stock market investment options.
Although silver hasn’t experienced this growth, it has a wider industrial application, making it one of the most valuable precious metals. If you’re new to investing and wish to invest in these two commodities, here’s how you can go about it:
Buy the Physical Commodity
The first and most preferred option by many is buying the physical commodity from a reputable seller. Remember that you might pay a little more to the seller to cater to melting, molding, and transportation to your location.
Keep in mind that you might also be required to pay the insurance premium and storage fees.
Is Buying the Physical Gold or Silver the Right Option?
Many people think keeping gold and silver in their homes is the safest option to tackle any financial market instabilities. Although it appears like a good idea, there are some risks associated with this decision, and they include:
- Theft – you can’t predict when someone might break into your home and take off with your gold or silver. However, you can get insurance coverage to protect against theft.
- Misplacing the asset – although it’s difficult to misplace an entire gold or silver bar, it’s easy to misplace a gold or silver coin which is much smaller in size.
- Paying insurance premiums – keeping gold or silver in your home requires you to pay the monthly insurance premium, which might add to your total expenses.
- They don’t pay dividends – gold and silver are dead stocks that don’t generate income unless you sell them.
Investing in the Exchange-Traded Funds
If you don’t wish to have gold or silver delivered to your home, you could opt for ETFs, where you buy gold or silver shares from your preferred stockbroker.
With the ETF option, you’ll manage to buy gold or silver at the current market price without the obligation of storing or keeping the commodities in your home.
This means you won’t pay extra to have the precious metal molten or pay the monthly insurance premium. Your stockbroker would be responsible for this, and you can sell your gold or silver stock at any moment.
Is Buying Gold/Silver on ETF the Right Choice?
Taking this option is great for many reasons, including:
- Small quantities – you can buy shares in small quantities without breaking your bank.
- Widely available – there’s a tone of stock market brokers who offer gold as part of their portfolio, eliminating the middle man.
Buying Shares of Mining Companies
Mining companies are very lucrative, and investing your money by buying their shares is a smart move. Although the market movements might affect gold or silver’s prices, the companies’ stocks seem to perform steadily, making them a great investment option.
Get in touch with your financial advisor to help you browse through a list of better-performing companies that you might invest in.
Mining companies perform well in the stock market, and you can use this option for portfolio diversification. However, it would help if you only chose reputable companies with a long history.
The best thing about this option is you can invest in more than one mining company as a diversification technique. You’ll get better payouts when the demand for these commodities goes up, and you won’t have to worry much when they’re not in demand since the companies are equipped to perform optimally.
Pros & Cons of Investing in Gold and Silver
Gold and silver are among precious stones that are still in demand even after centuries since they were used as currency.
Their value has also grown in that period, and they’ve performed exceptionally well compared to other financial assets like bonds and stocks. Investing in these two has some pros and cons, and it’s only fair if you know about them.
- Gold and silver have a positively growing value that is good for investment. Investing in them can help in inflation hedging and would come in handy when the financial market isn’t favorable
- They help in portfolio diversification due to their intrinsic value. However, you should hold not more than 15% of gold or silver in your portfolio.
- They provide financial security, and you can sell them during uncertain times.
- You might have to store and transport the physical commodity.
- You have to pay for insurance premiums and tax that amounts to 26% of the gains after the sale.
- Gold or silver don’t earn you any passive income, and the only way to get money is by selling.
Should You Invest in Gold & Silver?
Gold and silver are known for their value and worth, and central banks worldwide have approved and recognized their value. Investing in the two can be a great way to hedge inflation and counter tougher market times.
You can invest in these two commodities by buying the physical asset, investing in the ETFs, or buying mining company shares.