Investing in gold has been a reflexive choice for many people in times of economic instability, but getting into gold right when everyone else is just means that you are buying in when the price is high. Later on, after the troubled times pass, these panic investors sell off their gold, just as the price is going down. In other words, they are buying high and selling low, the worst possible strategy. In this article, we will go over some tips to help you take full advantage of gold as an asset.
Don’t Go With the Crowd
It’s true that many people flock to gold when there is uncertainty in the economy. But this isn’t a winning strategy when everyone is doing it at the same time. The more people want gold, the higher the price will rise, and it’s obvious that buying any asset when the price rises is a bad idea. You should be buying when the asset gets cheaper. The fact that everyone instinctively flees to gold when the markets are going topsy-turvy is a partly a good sign, because it shows how much value people place in gold. The downside is that this is a poor time to buy.
Think Long Term
Instead of reacting in panic to short-term swings in the market by turning to gold, think more carefully about your investments. If you want gold to be part of your portfolio, then it should be in there before a financial panic grips the system, not during. That is because you should be holding onto gold as a long-term investment and a hedge against uncertainty. The goal of this strategy is to use gold’s ability to act as a safe haven in order to counterbalance the rest of your investments. The volatility of gold means that it isn’t always a good idea to use it as a short term investment- nobody is every quite sure where the price is going to move on a daily, weekly, or even monthly basis. On the other hand, you can be reasonably sure that gold will retain value over time- even long periods of time. In that sense, it is a low risk investment in the long term. You can place the majority of your portfolio in risky assets like stocks, and then a nest egg in gold. Even if the stocks do poorly, the gold should keep its value.
Use Tax Benefits
One of the keys to good investing is minimizing your tax burden. To that end, there are several possible ways to cut down on paying taxes for investments like gold, but the most significant one is probably using a tax sheltered investment account, like an IRA or 401(k). A gold IRA is a good way to invest gold, because gains in IRAs are only taxed once- either when you make money as income, before using it to buy gold, or when you withdraw the money from the account, after it has been sitting in the account for years. Ordinary investment accounts require you to track your capital gains and losses every year and pay taxes on them, which is both an annoyance and a drain on your gains. IRAs and 401(k) plans are engineered to avoid that problem. Take advantage of their special tax status and place your investments like gold into these accounts for the tax benefits. It saves both time and money, especially if you are using gold as a long-term investment as we recommend above.
Hopefully, this article has educated you about some good ways to invest in gold. Remember that the wisdom of the crowd is not always the best thing to follow when investing, especially when it comes to gold, and most especially when that wisdom comes from panic. Think in the long term. If you are worried about financial collapse or monetary decline, don’t get into gold just because of what you read in today’s newspaper. Consider your strategy carefully and build it over time. Expect to hold the metal for years, instead of just whenever you feel worried about the economy.
Author: Above article has been contributed by James and he suggests gold IRA best way to invest in gold.