Investing in precious metals regardless of whether you’re a skilled or novice investor is complicated and confusing because there are many variables you need to consider. Despite this, it’s said that these types of investments are drawing much attention nowadays because people are looking for alternatives. The hype can be explained by many investors who are increasingly skeptical of the global economy. To diversify their portfolio, it’s believed that they see precious metals as suitable investments to reduce their financial risk exposure.
But before you get carried away with the trend about investing in precious metals, it’s best first to carry out your research on this matter. To help you make a prudent decision, here’s a guide on the pros and cons of investing in precious metals.
Pros Of Investing In Precious Metals
Before buying precious metals from online sources like https://www.oxfordgoldgroup.com/product-category/silver-products/ and others similar to it, you need to start by taking a look at the advantages of your decision, and these are:
- Inflation Hedge
Are you saving for retirement or a long-term project? If so, investing in precious metals might be the perfect solution for you because they excellently hold their value. This is music to your ears knowing as an investor because you’re constantly worried about your money’s worth.
Precious metals are an ideal investment because they don’t lose their purchasing power, unlike other investment instruments. This is especially ideal because the cost of living has been gradually rising over the years, and the value of precious metals has been increasing. Therefore, these precious metals act as an excellent store of wealth even during periods of economic crisis, such as following the outbreak of unrest and many more.
This stability of precious metals might be because they’re tangible assets, so they’re classified as commodities. The relative stability of gold for over a millennium or two is enough proof of how precious metals are an excellent store of value, hence a great inflationary hedge.
- Portfolio Diversification
A common investment rule you should always observe is never placing all your eggs in one investment basket. This is one of the main reasons to invest in precious metals, which are non-correlated to other assets such as bonds and stocks. Therefore, economic uncertainty which negatively affects the value of stocks or bonds doesn’t have any adverse impact on the value of precious metals. In fact, precious metals such as gold perform very well during financial downturns such as stock market crashes or economic depression.
- Long-Term Store Of Value
The price of precious metals usually increases in value during social, economic, and political uncertainty. Because of this, they act as a great store of wealth. This is contrary to a notion among some investors who see investing in precious metals as a defensive strategy to hedge against inflation.
Precious metals have also increased in value in the long term, which in some cases happens at a faster rate than stocks and bonds. Hence, you can earn a substantial profit by simply investing in precious metals.
Other than enjoying peace of mind knowing the value of precious metals will rise over time, this investment doesn’t get its value from the performance of a particular company or industry.
- Demand And Scarcity
Mining for precious metals won’t last forever. In fact, it’s getting harder with each passing day to get this natural and scarce resource as their reserves are slowly being depleted. Despite the scarcity due to the depletion of this natural resource, there’s increasing demand for precious metals. This greater demand has been fueled by the increased use of precious metals in everyday use, such as medical supplies to inside computers.
The increased scarcity of precious metals has led to a hike in the price of precious metals such as gold. This means investing in precious metals such as silver now will fetch you lots of money in the years to come due to its higher demand.
- Tangible Asset
There’s a comfort that comes with physically seeing the item you’ve invested in. This is what you enjoy by investing in the physical form of precious metals which holds their intrinsic value. But with investments such as company shares or bonds, you only get a certificate that wouldn’t hold any value if the market crashed.
Cons Of Investing In Precious Metals
Precious metals are like every regular investment, meaning they have some downsides. Here are the most notable cons you need to know about;
- Liquidity Problem
In most countries, the physical form of precious metals like gold isn’t considered legal tender. Therefore, the only option you’re left with is selling your precious metal for money, an acknowledged legal tender, or entering into a barter agreement. All this is quite inconvenient and draws away from the appeal of precious metals.
Precious metals, including silver and gold bullions, are collectible, meaning you’ll get taxed a 28% capital gains tax upon selling it. This usually applies regardless of how long you’ve held onto the precious metal. In addition, the 28% capital gains tax is much higher than what you pay on other long-term capital appreciations of assets such as stocks, which is only at 20%.
- Storage Challenges
If you buy a physical form of precious metal, you’ll need to arrange for its storage. You can choose to store it at home, but this increases the risk of theft or destruction due to natural disasters such as fire. The other alternative is storing your precious metal in bullion storage at a fee, which isn’t ideal if you’re finances are tight.
- High Investment Cost
You’ll need to pay more for a precious metal than its actual market value. This is usually the case because you’ll need to pay a commission when purchasing precious metals such as gold and silver. How much you’ll pay usually depends on the dealer and market conditions, with the general considerations being:
- Local coin shops are more expensive compared to online dealers; and
- Bars are cheaper than coins because the latter usually feature complex designs.
If you’re thinking of investing your hard-earned money, the choice of precious metals is one option that’ll undoubtedly come to your mind. Nevertheless, you shouldn’t jump ahead and invest without first weighing the pros and cons of this decision. Fortunately, this guide has eased all your concerns by taking you through the advantages and disadvantages of investing in precious metals such as gold and silver.