3 Rookie Mistakes To Avoid When Investing In Gold

Posted on: 22 January 2015

Savvy investors know that gold should be part of every financial portfolio. Gold helps protect investment portfolios from falling stock prices and disappointing bond returns. But if you're new to the gold game, you need to know these three rookie mistakes and how to avoid them.

1. Putting all your gold in one basket.

Even though you understand the importance of diversification in regular investments, you may not realize you can make the same mistake when investing in gold. Gold investments are divided into two asset classes: bullion and coins.

  • Bullion comprises nuggets, jewelry, bars and ingots. Bullion is measured in value by purity and weight.
  • Gold coin investments include historical coins, ancient coins and both circulated and uncirculated minted coins. Investment grade coins are also included in this asset class. Investment grade coins include specially-minted gold coins that were never intended for circulation. All gold coins are valued based on their purity, rarity and desirability in the marketplace.

To avoid this rookie mistake, your gold investment should include items from both asset classes. Because while bullion gold is indexed in the economy and its value rises and falls, gold coins are not indexed and their value remains steady based on their quality as noted above.

2. Investing in gold stocks instead of actual gold.

Gold stocks represent an investment much like a regular stock or a bond. Your gold stock holding is managed by the corporation that sold it to you. You are at the mercy of that corporation's success or failure as a business. You don't actually own any gold. You are merely an investor in a company that itself either invests in gold or owns gold.

Avoid this common mistake. To get all the benefits of owning real gold, you must have physical possession of the precious metal, or otherwise have access to its storage facility, with your name on record as the owner.

3. Investing too much or too little.

The danger in over or under investing in gold lies in being forced to sell or buy at inferior rates. If you invest too much, you may have to sell when prices are low since you need to liquidate assets for some emergency. If you invest too little, you may be tempted to buy at higher rates in order to get in on the market as soon as possible. Both of these are especially poor investment strategies for gold bullion. It will be a long while before you can recover from such errors.

Avoid this mistake by carefully considering your existing portfolio and your liquid assets. Most experts advise investing between 5 and 20% of your total portfolio in gold. There is a great divide between those numbers, and your personal decision should include making sure you won't need that money before at least 10 years have passed. That will ensure that you can invest the maximum amount now, without needing to pull out when rates are unfavorable.

As long as you avoid these three rookie mistakes, you should succeed well in your gold investments. For more information, contact Certified Rarities or a similar company.