Risk is inherent to finance. Even with insurance, no one is completely risk free. Risk is part of life, regardless of what we do — and that includes investing, as pretty much anyone who lost money in the last few years can tell you. In the last couple of years, gold and silver have been discussed without end on talk radio, financial TV, newspapers, investing blogs — pretty much all media is infatuated with precious metals. Is gold in a bubble? Is silver going to explode? Do precious metals outperform the dollar during times of recessions?
Photo by Giorgio Monteforti via Flickr
Many people say you should buy gold now, while others say you should wait. But if you decide that this is a good time to buy gold, what then? What’s the best way to invest in gold? In this post, we’ll be discussing an alternative way to invest in gold that doesn’t include gold futures or physical bullion — and just might include healthy dividend income.
Investing in precious metals like gold is an extremely risky financial move. Buying gold at its peak, only to see its value diminish, means you lose your investment rather than gain it. And, given how volatile the price of gold has been in the last twenty years, you could lose over 70% of your investment — or more.
If you buy gold at its peak, and it won’t “re-peak” at that point again, then you can’t make money. You’ll never be able to get your money back that you invested. It’s essentially a checkmate.
The same goes for silver, platinum, and pretty much every other precious metal in existence. It’s risky. To profit at all, you have to sell your assets after the prices for your metals increases. If the price goes down, you can’t make money.
The inherent risk in buying commodities straight up has led investors to look for a more secure and less risky way to invest in rising precious metals costs. Below, I’ll be talking about a way to indirectly invest in gold that is safer. Of course, “safer” in investing is always a relative concept, and you’ll need to do the specific homework on your own.
In my opinion, the best way to invest in precious metals while cutting risk is to invest in precious metal mining stocks — silver stocks and gold stocks, for example. These mining stocks are superior from a risk-analysis perspective for the following reasons:
Gold stocks, of course, also bring on other risks: accounting fraud, bad management, etc. While I believe investing in dividend paying mining stocks (especially larger companies with a proven track record) is a safer alternative to risky gold futures and physical bullion from a profit-perspective, some would obviously disagree.
Mining stocks are my favorite way to invest in precious metals. Of course, that doesn’t mean I don’t own any physical gold. Getting a little physical with gold investments is OK if it’s done in moderation. Physical gold and silver coins are a great “worst-case scenario” investment, and can provide the more cautious investor with some peace of mind.
But in the end, investing in metals through mining stocks is my preferred gold investment because it pays dividends, allows one to invest in long-term growth, allows for value investing, and doesn’t decrease one’s ability to profit.