The Benefits And Risks Of Investing In Physical Gold
Posted on 25th April 2023
Since ancient times, humanity has put gold in a high pedestal. Over the years, physical forms of gold have been utilized as a reliable currency – from the grand civilizations of the old past to the modern financial system (to some extent).
As an investor, henceforth, it’s in your best interest to invest in physical gold. Do keep in mind that there are different aspects to consider in putting your money in gold like the tax on inherited gold coins and so on. In this feature, you’ll learn about the different pros and cons of investing in gold. Read on.
Advantages Of Physical Gold
Gold has been a favorite precious metal for many investors due to its several benefits, such as the following:
1. It Serves As Protection Against Inflation
For many investors, hearing about inflation brings about grave concern. It’s an issue to be worried about since it always influences the overall value of investments. Over time, it’s likely for the overall consumer purchasing power to decline.
Luckily, gold has been a hedge against inflation for years. It’s because the value of the precious metal increases when the purchasing power of currencies drops. Generally, it serves as protection for your investment when the market spirals into high inflation.
2. To Diversify Your Investment Portfolio
Adding physical gold to your investment portfolio is one way to diversify your assets and minimize overall risk. Nowadays, gold typically serves as a cushion in case the market falls downward.
3. It Has Security Of Value
One of the main perks of physical gold as an addition to your investment portfolio is its security. Generally, you have peace of mind knowing that the price will likely increase in the long run. Although the price will drop from time to time, expect it to rise back up immediately.
Although the economy’s status may influence gold prices, a deteriorating economy will not automatically drag gold prices down. Remember that the opposite happens in which uncertainties in the economy tend to urge more people to invest their money in gold, leading to an upward price trend.
4. Simplicity And Convenience
Investing in physical gold may be an alternative if you find the intricacies associated with stocks or bonds bothersome. Many find the simplicity of precious metals enticing.
Although learning a thing or two about gold would be helpful, you don’t need specialized knowledge to be able to buy precious metals. Additionally, investing in physical gold would be a welcome addition aside from your retirement savings to help you for retirement.
Disadvantages Of Physical Gold
While physical gold presents numerous benefits for both newbies and long-time investors, it has drawbacks too that make some doubt whether investing in the precious metal is a good choice. Here are some of the disadvantages you should know:
1. Storage And Security Can Be Difficult
One of the initial concerns when investing in physical gold is storage. Storing your investment in a home safe or a safety deposit box at the bank doesn’t guarantee complete theft-proofing and a recurring fee is involved.
For example, some investors might opt for pooled accounts if they lack secure storage for their physical gold. In this approach, you store the gold in a vault where each investor has designated numbered bars or coins. When it comes to an allocated account, you must pay a share of the storage and insurance fee.
2. It’s Not A Passive Income Asset
Another drawback with physical gold is that it can’t generate income when you own it. Think of it as a stark difference if you compare physical gold with bonds or stocks that may be able to pay interest or dividends. If your main goal is an investment that can provide cash flow or passive income, there may be better choices than physical gold.
3. There Are Issues With Liquidity
Gold has been considered a liquid asset, but selling physical gold can be a burden. The process takes time, and most find it cumbersome, unlike selling financial assets such as bonds or stocks. Plus, expect transaction costs such as fees or premiums when buying or selling physical gold.
4. There Are Additional Costs On Premiums And Taxes
If you invest in physical gold, you should consider the premiums and taxes. As mentioned earlier, the same applies if you sell your gold. Generally, you must deal with additional costs when purchasing or selling precious metals. And there are other fees like tax on inherited gold coins and others.
Final Thoughts
Adding physical gold can bring numerous benefits, such as protection against inflation, convenience, and diversification, to name a few. Nonetheless, it’s also crucial to know about the potential risks associated with the precious metal, such as security, liquidity issues, and additional costs. Before making a decision, it’s crucial to brainstorm your main investment objectives to know if physical gold is the right addition to your investment portfolio.
