Investing in precious metals is something that many investment advisors suggest their clients do. This type of investment diversifies portfolios and provides liquidity. A portfolio that includes investments in precious metals lowers the risk of your portfolio and thus protects you against possible market changes down the road.
Because precious metals differ greatly from each other, it is recommended that you invest in at least three of the metals: gold, silver, and platinum. Below are rules that you should consider when investing in precious metals that will help you maximize your profit and minimize your risk.
1. Store Your Precious Metals Outside of the Bank
In order to ensure the highest level of security and greatest ease of access for just you, it is a good idea to store your precious metals outside of the bank. By storing them in the bank, you may have issues arise where you may not be able to access your Safe Deposit Box, and thus your precious metals. Keep your precious metals somewhere where they will be accessible in an emergency. In case of a gold IRA you’ll need an authorized custodian. Make sure to read our gold IRA reviews first.
2. Start Small and Then Grow
Don’t buy too much of the physical precious metals when you are starting out building your portfolio. In the beginning you should focus your attention on smaller things such as coins that will pay a minimum premium. Stay away from other items that will pay a large premium and may be difficult to resell such as jewelry and other decorative items made of precious metals. Once you have gotten a handle on precious metals investments, then you can think about expanding your investments to bigger metals.
3. Know Your Precious Metals’ Spot Price
Dealers quote a precious metal price that is a combination of the the international spot price and the purchase premium. The spot price is the bigger piece of the puzzle, thus it warrants your attention.
This spot price is determined by markets where your precious metal is traded and it is constantly changing.
By knowing the spot price, you will know how much of the specific precious metal you can afford to buy.
4. Know Your Precious Metals’ Purchase Premium
The purchase premium is the cost added to the spot price that covers the production, insurance, and shipment of the precious metal to the right spot. The purchase premium is a much lower number than the spot price, but it covers payment of everyone involved in the production and transportation of the precious metal.
Each dealer will likely charge a different premium, depending upon the effort that was put into creating and transporting the metal. Because the manufacturing cost of the metal doesn’t vary much depending on the size of the bar, the premium is higher for metals valued at a lower price.
5. How to Get the Most Metals at the Lowest Price
A smart investor will look for the precious metal that is within his budget and that has the lowest premium. In addition to budgeting smartly, the investor will also know what he will need to sell down the road in order to cover his living expenses. Breaking up some of your investments into smaller pieces that have better liquidity is essential in this situation. And lastly, a smart investor will try to purchase the greatest amount of precious metals when they are at their lowest price.