Investing in Gold Can Help in Financial Standing
As our families grow and responsibilities increase, we realize the importance of ensuring a solid financial standing. We spend most of our lives trying to look for ways to earn more money. While it is important to earn a decent amount every year, it is also important to think for the long-term. This is because you will not always be able to work and earn for yourself and your family. As you grow old, you wish to retire and have a comfortable life at home. However, to do this, you need to make wise financial decisions while you are earning.
Running income becomes difficult to earn once you are old and frail which can come due to financial issues. It is therefore very important that you take steps to make this time of your life easy. To do that, you need to re-think your spending habits while you are working. Many people, for this purpose, choose to put away a part of their income every month. But that is not enough. Money saved will remain the same or you can use it to pay for unexpected expenses can affect your financial status. Therefore, rather than storing your money in a separate account, you should put it to good use before you spend it all.
Why Should I Invest?
This is where investing comes in. You can consider many investment opportunities to double or triple your money in you have good financial status. To know how much money, you should invest and what you should invest it in, first determine what your goal is. The investment goals of each individual differ according to their age and income level. We recommend strongly that you start investing as early as possible.
As you reach the middle-aged group, you have increased responsibilities, which make it difficult to invest a greater amount. However, if you are in this age bracket and have not considered investing yet, do not worry. You can still make some great decisions that will help you significantly in your later years.
If your goal is to save money for your kids’ education or become an owner of a house, you can estimate the amount you will need. Considering that amount, you can find out which of the investing techniques can give you such a return to have your status financial fit. You should also have enough financial security after your retirement that will take care of all your needs.
Five Different Ways of Investment
When you are new to the world of investments, it is natural to feel overwhelmed. You require a sure shot way that will provide you with the results you are hoping for. However, one thing that you must know before investing is that every form will carry a particular risk. Also, if you are hoping for a greater return, the investment will have a greater risk and can affect your financial status. The higher the return, the greater is the risk. This is one rule that every individual should be aware of before considering all their options.
Many investment managers and consultants in the market will be eager to help you out. Nevertheless, it is crucial that you carry out your own research as well. Knowing every form of investment and considering their pros and cons will make you feel confident about your decision. Here are some of the popular methods of investment:
- Mutual Funds
Many individuals decide to invest their savings into mutual funds because of the lower risk associated. In a mutual fund, you get to invest in different securities by becoming part of a pool of investments which can help in making your financial status good. By doing this, you have the chance to diversify your portfolio without having to face significant risk. This is why many individuals choose to invest in mutual funds. The advantages of this option include:
- You do not have to worry about making decisions as you always have a professional guidance available. You have the satisfaction of a number of professionals handling your portfolio for you. You feel confident about your investment decisions since there are many other investors with you. The sharing of risk with other investors makes the loss spread out evenly.
- You can diversify your portfolio and not be optimistic from only one of the investment tools.
Even though there are many benefits associated with investing in mutual funds, there are also certain disadvantages. There is a high cost involved with mutual funds. Moreover, you do not have complete control over your portfolio since the manager will be doing that. This lack of control or limited access can become a problem for some of the investors.
Many people choose to have a share in different companies by investing in their stock who are having good financial status. Stocks are popular due to their transparent nature and greater control over how you choose to invest. However, there is a higher risk involved as well.
It is extremely difficult to predict the performance of a particular stock. This makes the investor highly susceptible to suffering losses if you don’t make timely decisions. The ease of investing is what attracts most of the investors in the stock market and keeps them engaged. However, to make money, you need to make sure that you are able to make profitable decisions at the right time.
Investing in precious metals, particularly gold has been an age-old practice. Some people choose to invest by buying different jewelry items, while others prefer to buy gold bricks and coins. The reason for the high interest in gold investments is the less volatility in its prices. The value of gold remains high for a long time and the price changes are not significant. Even though there is a lack of predictability, the risk is still less than other options.
- Hedge Funds
Hedge funds are generally an option for people that are willing to invest more than 1 Million in investment. They are similar to mutual funds but are comprised of individuals with significant assets. The fund uses the money all the investors’ pool in different securities. Because there is a high amount involved in investing, there is a significantly higher return as well. Managers use aggressive strategies to get huge returns.
However, hedge funds are not for everybody. You cannot view it as a solution for every individual. Moreover, there is a high cost involved with the management of this investment method.
- Real Estate
The real estate market is another old-time favorite for investors. People have been investing their money into buying new property and renting it out to earn some extra income. This kind of investment is very similar to that of investing in gold. However, while the value of gold is more likely to remain high for prolonged periods, the property’s value isn’t.
There is greater volatility associated with the price of housing. Over the last few decades, housing prices have witnessed dramatic trends in pricing. Therefore, when it comes to risk, investing in gold is the absolute winner amongst the two options.
However, investing in real estate can be beneficial in some situations. If you wish to secure a place for your future and your family, you should consider this option. You will not need to worry about rent when you are old and you will always have a place to stay. Moreover, giving out the property for rent can help you earn running income. Something that becomes highly difficult once you are no longer able to give long hours to work.
People tend to stay away from this option due to some major disadvantages. These disadvantages usually include the high costs associated with maintaining the property. When you own property, you have to be liable for its property tax, insurance, and maintenance costs. Also, the process of liquidating property is not an easy and quick process. You will have to hire outside help whenever you decide to sell the house.
Why Invest in Gold
As per the discussion above, you can conclude that out of all the options, gold is the safest. This is because investing in gold carries the least amount of risk and does not come with added costs. The returns that you can enjoy by investing in Gold tend to remain high. Also, there is no date of expiration and you can keep the gold safe for future use.
Gold has been a way of preserving wealth for many centuries. As compared to the paper currency we use today, gold is significantly higher in value. Also, while it is true that not every time might be the ideal time to invest in gold, it does not take long for gold to regain its value. The scarcity of this valuable item makes it so unique and unaffected by inflation.
It is for these and many other reasons, that people have been investing in gold for over 3000 years. However, over the years, investing in Gold has changed dramatically. You no longer need to own physical gold and can enjoy the benefits of investing in gold in many other ways. The next section discusses the different ways you can invest in gold.
Five Ways of Investing in Gold
- Gold Futures
Gold futures are contracts that allow the buyer and seller to set the terms before the exchange occurs. In a gold future, the buyer and seller decide on everything regarding the trade of gold before they actually carry out the transaction. The day of the exchange is the “settlement day”.
Usually, the settlement date is 3 months after the decision of terms. To prevent sellers or buyers from walking away from the deal, there is a requirement for paying the margin. If the prices start falling down, you will be asked to pay anywhere between 2 to 20 percent of the value of gold originally traded. Gold futures, in the United States, are usually traded on the New York Mercantile Exchange in the form of 100 troy ounces contracts.
Gold Futures allow the buyer to delay the trade to give them an opportunity to enjoy a greater amount of gold at a lower price. Also, as an investor, it is extremely tempting to buy gold by paying some of the amount rather than paying the whole. If you end up finding another buyer, you do not have to pay the remaining amount and can benefit from the transaction.
It is also easy to expect the changes in gold prices in the coming months. By choosing to invest in Gold Futures, you also eliminate the need for finding a place to store the gold and keeping it secure. You have plenty of time to look for a buyer and earn a profit without having to store it after the settlement day.
Just like the value of gold might increase during the time before settlement, it can also decrease. Therefore, you should not keep your hopes too high. Make sure that you are confident about the expectation of gold prices going up in the near future. If there is a significant drop in the price, you might end up losing more.
- Gold Coins
If you are interested in buying gold coins, you can contact a dealer and get gold coins with up to 10 percent spread. The gold coins come in 1, 1/2, 1/4, 1/10th-ounce denominations. You should make sure at all times that all the coins are free of any scratches or marks. It is strongly recommended to keep these gold coins locked away in a safe at a bank. Due to the high spread involved and the authenticity issues associated with gold coins, this tool of investment should be a very small portion of your portfolio.
- Gold Companies
Another way of investing in gold is through stocks of gold mining companies. The liquidity aspect of this tool is extremely effective as it is much more difficult to liquidate coins. However, you cannot just buy stocks of any gold mining company. There will be many options available to you in the market but you should be sure to choose one that has a strong standing.
An upside of investing in stocks instead of physical gold is the ability of stocks to go up for other reasons. The stocks can also witness a rise because of the changes in the stock market. If this appreciation is extremely high, you will be able to reap a greater profit. Since you are not investing in physical gold, you don’t need to feel reluctant about the idea of owning it.
The stocks can witness extreme changes in the prices, so you might need to exercise greater patience. Also, you will need an extensive experience and sometimes guidance to make the right decisions and a good financial status. Because of the high volatility involved in the stock market, it is better to diversify your portfolio. Unlike other forms of gold investment, inflation does not affect this method.
- Gold ETFs
Gold Exchange-Traded Funds can be traded on the American Stock Exchange and New York Stock Exchange Market. When you buy a share of any of the ETFs, you become the owner of almost 1/10th of a gold ounce. Therefore, even though they exist as stocks, ETFs are valued as gold.
The most lucrative aspect of investing in Gold ETFs lies in how they are valued. By investing in ETFs, you are able to make gold a part of your portfolio. There is no need to fear how you would hold physical gold and the transactions can be done easily. The process of trading is easy to understand and so is the trend of the stock. You can predict how the stock is going to change in value based on information you find on the exchange. You can also buy gold ETF to minimize the risk in your portfolio.
As an investor, you will be receiving money rather than gold in case you decide to redeem your ETF. Therefore, you do not actually own gold but rather a contract that is backed by gold. There is a management fee associated with owning gold ETFs, which makes this option more expensive than owning physical gold. This is why it is important to choose the stock and carry out research on the right mining company.
- Gold Bullion
Many people invest in gold by buying bars which have good financial condition. These bars of bullion are nearly immaculate which makes them pure and significantly valuable. You can trade this form of gold based on its weight and value. However, you will need to pay great attention to how you choose to store it.
Rather than being a piece of paper or a volatile stock, you can actually feel and see the gold bullion right in front of you. This makes investing in such a form one of the most popular methods. Usually, you can find ¼ oz, ½ oz, and 1 oz forms with the one-ounce form (Krugerrands) being the most popular one. There are no added costs associated with this investment.
What Is The Best Way To Invest In Gold?
While there isn’t one answer to this question, it is recommended to invest in all forms to minimize the risk. If you decide to hold physical gold, you will need to keep it with a third party i.e. a vault or a bank storage system. On the other hand, when we consider the gold futures and stock options, they have an element of unpredictability that not everyone will feel comfortable with. Investing in gold mining companies seems to be a lucrative idea. However, it needs extensive research from your side. These stocks can prove to be a tool to minimize risk from your overall portfolio.
Tips for Investing in Gold
- Determine the Right Time
While the value of gold seldom witnesses shocks, it is important to determine the right time to make your financial status good. Do this by looking at the recent trends in the value of gold and keep in mind your goal. If the price of gold is expected to take a dip in the coming time, you should not expect to make a short-term profit.
- Keep Your Objective in Mind
It is easy to lose track and become over ambitious in your investing strategy. However, it is extremely important to keep your eye on the main objective. You do not need to invest more than what is required to get the return you are looking for. If you keep changing your plans with the transitioning trends in the market, you will never have a single strategy.
Do not put all your eggs in one basket. Make sure that you consider all the different ways in which you can invest in gold. Then decide upon the ways that will help you earn the return that you are aiming for. While investing in gold coins may seem like a lucrative idea, you should also buy gold stocks and not invest only in coins.
- Choose the Dealer Wisely
Make sure that you compare the prices given by different dealers and then decide on one. Do not go to Craig’s list or eBay to carry out such sensitive and valuable transactions. Only choose dealers you can trust.
- Realize the Value of a Bullion
Regardless of the advantages of other options, always know that gold bullion is the purest form of investment. The gold mining company you choose might give you a quick and easy return, but gold bullion has the least amount of risk which do not affect your financial status. When you have gold in its physical form, you can make better decisions and wait to reap profits.
Investing in Gold is no doubt a lucrative way of saving some money for your old age but it requires caution. Before taking the leap, you should think about what your goal is. According to your objective, you can then research on what would be the most profitable option. Even though there are numerous other ways of investing in the modern world, gold remains to be one of the most popular. The reason for this popularity is the lack of unpredictability relevant to gold assets.