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Precious metals like gold, silver, and palladium can be found in products we use every single day. From our smartphones to our earrings, these highly desirable commodities serve many functions that we often take for granted.
Something you might not have considered before is the opportunity to invest in these items for financial gain. Provided they’re well looked after, these valuable assets are great at holding their value. And, with prices known to increase during times of economic uncertainty, they make for an attractive proposition for lots of amateur and seasoned investors alike. In fact, even governments around the world have invested billions of dollars into gold reserves to maintain financial security during times of economic turbulence.
However, before you go shopping for some silver coins or gold bullion, there are a few risks to investing in precious metals that you need to keep in mind. Understanding both the pros and cons will help you to make a more informed decision about whether or not it’s the right option for you and your money. Here are three things to be wary of.
Security concerns
Whenever you invest a large sum of money into a physical product, there are safety and security considerations that have to be taken into account. To safeguard your asset from potential theft or damage, there are a few options to consider. You can invest in a safe and store it at home, but this is generally not advised, especially if you’re buying large amounts. Alternatively, you can pay for it to be vaulted in a secure facility.
Of course, these costs will eat into any eventual profits and should be factored into your buying decision – on top of any insurance costs. In addition, transporting and storing the product comes with the risk of it sustaining damage in transit, which could further affect the value of your investment. To mitigate this, make sure you protect your metal whenever moving it around, and only use reputable brokers who will ensure it’s safe and secure in transit.
Low-quality products
Speaking of reputable brokers, another potential risk of investing in precious metals is getting less than you bargained for in terms of quality. There are lots of places investors can go to buy a new asset: coin shops, private mints, and online marketplaces to name just a few.
In rare circumstances, you might come across sellers stocking fake products that they claim are authentic. To ensure you’re purchasing exactly what is being represented, it’s important to do your research before committing yourself to buying. You should do your due diligence to get reassurance that both the product and the seller can be trusted, so you don’t end up wasting money on a fake or low-quality item.
Opportunity cost
Financial risk can manifest itself in different ways. It isn’t necessarily just about the potential for losing the money you invest; it also refers to the potential earnings you might lose out on by choosing to invest in one product over another. This is otherwise known as the opportunity cost. While precious metals are generally seen as a ‘safe-haven’ asset – in that your investment will be low risk – there are also lower rewards on offer compared to other types of investments. This is especially true when interest rates are higher, and your money could yield higher returns on other assets.
Investing in gold won’t provide you with dividends or a passive income – the only time you’ll get the chance to make any money on your investment is when you come to sell. If you’re relying on a steady stream of passive income, precious metals aren’t in themselves the answer, but they could still be a sensible investment as a means of diversifying your portfolio.
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