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Last updated on August 11th, 2022 at 09:37 am
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If you have never dabbled in investments before, you must keep in mind that it is not something to take lightly. Investments of any kind require knowledge, research, and reliable information. As a new investor, you might consider the potential of precious metal investments. Many people prefer investing in precious metals because the risks are not always as high as other forms of investment.
That is not to say that precious metal investments are not without risk. However, the risk in comparison to other stocks is usually lower. For instance, 2016 was a rough ride for many investors. Stocks fell significantly, causing a lot of stress and a loss of finances for many investors. Investments in precious metal mining, however, appeared to remain strong.
Gold and silver stocks earned YTD gains of 7% while other stocks fell or barely earned YTD gains at all. While other investors saw a loss of value, gold and silver investors reaped the reward of their gains. When done right, investing in precious metal mining can prove lucrative. There are, of course, investment mistakes you can make and losses you can suffer.
Choosing a Precious Metal
How do you choose between gold, silver, and platinum? When you think about it, gold seems to get all the attention in comparison to silver and platinum. Therefore, it should make the most sense to invest in gold, right? The answer is not quite that simple. Gold jewelry might seem like the clear winner when it comes to jewelry, but silver and platinum are not without benefits.
Silver is often in higher demand than gold among industry applications. When choosing which precious metal is the best to invest in, you should weigh a variety of information and knowledge. The demand for gold jewelry is high, but platinum offers longer lasting properties, which makes it a popular precious metal.
When it comes to gold, the demand for it among industrial applications is between 10 and 15%, whereas silver proves valuable in nearly every industry. Automotive industries, cell phone industries, and even photography industries use silver. You can find traces of silver in technology, biocides, and life-saving medical equipment.
Make sure you research which precious metal seems to experience more gains than losses, too. Although all of them will suffer a rise in fall in stocks, some might prove less risky than others. As already mentioned, silver is in higher demand than gold among industrial applications. However, silver seems far more volatile compared to gold or platinum. It can take a lot of research and knowledge to choose the best precious metal investment.
How to Invest
How about the best way to invest in precious metals? There are so many options available that it might seem a bit overwhelming. How are you to know which investment option works best for you? Each investment option offers pros and cons. What works for one investor might not work as well for you. Familiarizing yourself with each option can help you choose one that works for you.
Investment options include:
- Commodity EFTs
- Common Stocks and Mutual Funds
- Futures and Options
Of all the investment options, common stocks and mutual funds are often the best way to go for new investors. With this option, you work with a knowledgeable fund manager who can help you manage your buying, trading, and selling powers. Make sure you choose your fund manager wisely, however. Ask to see a portfolio and make sure it reflects a solid history of successful buying, trading, and selling.
If you are the type of person who can afford to gamble big, you might enjoy futures and options. Futures and options provide you the ability to earn the most gains on your investment. However, people who choose this investment option also stand to lose the most. In general, futures and options are not great investments for new investors.
If you have plenty of storage space and prefer the physical comfort of seeing and holding your investment, you will want to invest in bullions. Bullions may come in different forms, such as sheets, bars, or coins. You must store bullions in a safe place and properly care for them using recommended cleaning and handling techniques, which makes this a bit of a hassle.
Also, keep in mind that will bullions, you may have to wait to make your sale. You cannot rush the sale of physical gold, silver, and platinum. A buyer will want to ensure that what you have to offer is legitimate. Investors are more likely to become the victim of a scam when they purchase bullions, so new investors might want to stay away from this option.
Certificates are very similar to bullions, except you do not need to store and care for your physical property. Instead, you can rest assured that your bullions are well-cared for in a safe, secure location. Of course, certificates do not hold any value when you want to sell your investment. In other words, certificates are not a good option if you want to perform a quick sale at any point.
Finally, you have commodity EFTs. This is often one of the most popular methods of investment. If you are new or somewhat knowledgeable, you may want to consider commodity EFTs. You can trade and sell your investment quickly without having to wait, which gives you the opportunity to jump on sudden spikes in value when it best suits you.
Understanding the Risks
No matter how much research you do to determine the best precious metals to invest in, you will still face risks. There is no such thing as a risk-free investment. All investors know that at some point, they may face the risk of financial losses. Understanding what risks exist will help you make a more informed investment decision.
Gold may prove risky because it is not as highly demanded in industrial applications as silver. You want to invest in something that you know will remain in high demand. However, gold is not nearly as volatile is silver. Because demand is so high for silver, you may see a lot of investors jumping on the wagon to invest in silver stocks.
An increase in investors can increase volatility. You will suddenly see rapid spikes or drops in the value of silver stocks. In fact, since 1990, silver created annual losses roughly 43% of the time. In other words, nearly half the time, people were losing money on their silver investments rather than gaining money. Although losses are to be expected, you want something that offers potentially better gains more than 57% of the time.
Keep in mind that another risk you face is that precious metal investment is nothing like purchasing company stocks. When you purchase stock in a company, you become a shareholder. Therefore, you own a portion of the company, even if it is the smallest amount of ownership. The value of your investment directly relates to the company’s earnings and losses.
When you invest in precious metal, you are taking a gamble that the value of the metal will rise. You are not gambling on the success of a company. Instead, you are gambling on the success of a very finicky market and a somewhat unstable economy. Over the years, the economy has suffered tremendous hits. Although there have been times of recovery, it is not enough to say that the economy is in good enough standing to support guaranteed increases in precious metal values.
Finally, understand the risks involved with buying precious metals. Many companies and individuals look to scam new investors out of as much money as they can. Always be very careful when buying bullions. Although bullions have benefits, it is a risky purchase. You will want to verify the legitimacy of the bullion.
Ask the seller if you can have the bullion tested. Many sellers offer bullions that are not 100% gold, silver, or platinum, which is not worth the price. If you choose to buy bullions, choose a company known to test the products before listing them for sale. Stay away from bid sites like eBay, where the seller can try to sell you a false product for a phenomenal amount.
Work With a Professional
Most importantly, if you are a new investor, make sure you work with a professional. A reputable manager can teach you the ropes of safe, smart investing. There are many big-league investors out there who would love to take advantage of someone who is new to the investment world. Working with a professional provides you a measure of safety and comfort.
A professional can inform you if an investment deal is good or bad, thus helping you protect your money from thieves. Keep in mind that you will have to pay for a manager to assist you, but it is a worthwhile decision if you plan on trying to make any money with precious metal investment opportunities. Without a manager, you are a lone swimmer in a sea of possible sharks just waiting to take a bite.