Precious metals symbolize wealth, having done so for centuries now. Ancient civilizations often buried the dead with items made from these metals to ensure a smooth transition to the afterlife.
Men and women today continue to be fascinated by these metals, and ads on TV tout the benefits of incorporating precious metals into a retirement investment portfolio. Why are so many considering diversifying their portfolio and including these metals? What questions should an investor ask before making this move?
What Types of Metals are Appropriate for Investing?
Precious metals come in several varieties. However, most investors purchase gold, silver, and platinum for inclusion in their portfolio. Gold remains the most popular, as craftsmen use it in jewelry along with manufacturers who incorporate it into industrial and financial applications. A byproduct of lead, copper, zinc, and other metals, silver interests investors and industries use it for a variety of purposes. Finally, platinum remains relatively rare. At this time, it appears only 250 tons of platinum are produced each year. This adds to the value of the metal.
Precious metals differ from many investment vehicles today. Metals are tangible items investors hold in their hands, which many prefer. They want something solid they can hold and touch. Nevertheless, investors must know how to go about purchasing precious metals for IRA investing.
Why Should an Investor Purchase Precious Metals?
Investors want to know the benefits of investing in precious metals such as gold. The severe recession America recently experienced led to the government implementing numerous financial measures. Today, thanks to the global pandemic, governments across the globe continue to spend massive amounts of money to combat the virus and boost their economies. Investors worry about the future, as the funds being spent by the government must be repaid.
Investors believe commodities such as precious metals will increase in value in the future when these debts come due. A look at history shows precious metals serve as a guard against inflation. Investors reduce their risk during difficult economic times when they invest in gold and silver, and investors remain confident in uncertain environments knowing their investment portfolio won’t be reduced to zero. When other assets drop in value, precious metal prices typically climb.
How Does One Start Investing in Precious Metals?
Before purchasing precious metals, investors need to do their research. This ensures the investor becomes familiar with the options, degrees of liquidity, and the level of risk they are willing to take on with this vehicle. Doing so allows investors to choose the option that best meets their needs.
Some opt to invest in physical coins and bars because this remains the purest way to invest in precious metals. Purchase the precious metal bars and coins from coin dealers or firms specializing in this investment option. Gold bars continue to be a favorite among investors and may be purchased in a range of sizes. Some governments mint precious metal coins, but investors must understand the coin price remains dependent on metal spot prices. Bullion offers a way for investors to purchase precious metals in bulk. Investors discover this market handles over-the-counter trades of valuable metals.
Jewelry, on the other hand, provides a way for investors to obtain precious physical metals quickly and easily. However, keep in mind jewelers mark up the prices on their products, so investors shouldn’t expect a quick return on these items. This markup along with manufacturing costs takes time to recoup. Nevertheless, jewelry holds its value over time and withstands the effects of inflation.
Consider valuable metals account if you wish to invest in precious metals. Certain financial institutions offer two types of accounts suitable for the purchase of valuable metals. Allocated accounts provide more security, as the financial institution stores the metals in its vault. Unallocated accounts, in contrast, consist of all precious metals held by the bank. The investor isn’t assigned specific bars or coins and the financial institution retains the right to lease the metals.
Finally, research mining equities before making a purchase. Investors find this option allows them to dip their foot in the precious metals market, as they purchase shares from firms that mine, produce, or trade these metals. Stocks typically rely on the price of the metals. However, the investor assumes additional risks because they are betting on the properties as well as the investment company’s management. When a problem arises with either, the stock price may alter without any regard for the underlying metals.
Precious Metals Investing and Taxes
How are precious metals taxed? Investors frequently ask this question, as future tax burdens concern them. Precious metal investors find the government taxes them as if they are a business. Any profits generated from the investment get taxed as income. Furthermore, American investors must know precious metals that remain in their portfolio for more than one year become subject to the capital gains tax. An investor must know their tax obligations and how a precious metals investment affects these obligations to avoid problems with the Internal Revenue Service in the future.
Purchasing Precious Metals
Investors need to research precious metal suppliers along with the metals they wish to buy. Numerous companies entered the market upon recognizing the popularity of this investment vehicle, and some companies run scams to bilk investors out of their hard-earned money. Use caution when making a purchase and only buy from reputable companies willing to share their licensing, certification, and insurance documents.
Compare prices among the various dealers and review the terms and conditions of purchase. Any company offering precious metals below the current market value should be avoided, as this is a sign they may be offering fraudulent investments. Don’t hesitate to work with a professional financial advisor to find the precious metal dealer for your needs and investment strategy.
Precious metals offer investors protection against inflation and allow the investors to keep a balanced portfolio even when deflation becomes an issue. Fluctuations occur in the market and investors should not expect an immediate return on investment. Nevertheless, the market and metal prices remain stable over time and investors need to go in with the idea of holding on to the metals for a period of time. This helps to ensure the best return on investment.