All That Glitters…May Not Be a Good Investment for You

 

I am reading a framed article cut out of the USA Today.  The article is entitled “Invest in gold bullion, not bracelets”. The original owner highlighted what they thought were the most important points from the article. The highlighted phrases were:

  • Bullion and coin dealers are working overtime to to meet the demands of buyers and investors.
  • Gold’s price rose almost 15% in the last 2 months
  • Gold coins are investments, jewelry is not
  • You’ll do better if you buy gold coins…

What I would have highlighted was:

  • If you are going to follow the gold bugs, experts advise that you put only a small  portion of your investment portfolio into precious metals.
  • You’ll do better if you buy gold coins, bullion, certificates or mutual funds that invest in gold-mining firms.

Does this type of financial news story sound familiar? Well, as Ambrose Bierce said, ‘There is nothing new under the sun.’  The article that I am quoting from was published in the USA Today on 12/4/1989.

Some of the Do’s for  investing in all that glitters:

  1. Have only a (very) small percentage of one’s total  portfolio invested in precious metals. -Preferably not just one type of metal. You know, diversify.
  2. Do be aware that if everyone else is buying it, you have probably missed the majority of the upside.
  3. Do know at what price you will sell and take gains from your investment.
  4. It is probably best to buy a ‘basket of companies’ that make their money from mining, refining and selling precious metals. That way you are not purely speculating on the price of the metal(s). You may also earn dividends and gain on upside appreciation.

Some of the Don’ts about investing in all that glitters:

  1. Do not be tempted to invest with the crowd. -See my articles on behavioral finance.
  2. Don’t forget that investment in metals is often driven by greed and fear. Therfore, it may tend to be very a volitile investment. -Yes, more than the stock market.
  3. As with any investment, unless you are prepared to sell and take gains at a ‘target’ price, you may well be holding  losses for many years to come.

Caveat emptor. Proceed with extreme caution. Investment in bling may not be the right thing!

Jane Nowak is a Financial Planner with Kring Financial Management located in Atlanta, Ga. Jane’s practice focuses on Women’s Retirement Planning and Financial Planning for Women. Her articles have been published on line at NASDAQ, Financial Planning Association and Womenetics.com. Follow Jane on Twitter at: http://twitter.com/moneygal2020

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