Investing in Gold & Silver For Dummies

Paul Mladjenovic

• Publisher: For Dummies
• Year: 2020
• ISBN:
  9781119724049
• Edition: 1
• Topic: Business
• Subtopic: Commodities
• Index: Business

Diversify your portfolio with gold and silver

Investing and trading in gold and silver is always a sound idea—and that goes double in a time of unusual market fluctuation. As people look for safe places to diversify their investment risk, you'll likely see the value of your investment go up where other stocks are vulnerable. Gold and silver saw increases in value of 16% and 15% respectively in 2019—putting them among the top ten most desirable commodities out there—and are projected to experience even more of a bear market as the dollar wobbles in an uncertain post-COVID world. This year, 2020, gold and silver are set up to have their best year of price appreciation over the past 40+ years.

Written in an easy-to-follow, no-jargon style by CFP and bestselling author, Paul Mladjenovic, Investing in Gold & Silver For Dummies explains the different complex processes and vehicles for buying gold and silver. You'll find out the best ways to add these to your portfolio, how to balance risk and reward, and how to adapt time-tested investing plans and strategies to your goals.

• Identify your goals and form a plan
• Buy gold and silver safely to diversify your portfolio
• Use ETFs and options to profit from market ups and downs
• Understand when a gold and silver investment is legitimate
• Use technical analysis to time your market entries

Whatever your current familiarity with gold and silver, this book gives you the extra expert knowledge you need navigate your gold and silver investment portfolio safely through a bear or bull market.

Part 1

Getting Started with Gold and Silver

IN THIS PART …

Discover why gold and silver are great additions to your investment portfolio.

Figure out your approach in gold and silver — investing, trading, or speculating?

Get a handle on what you should know (and do) before you invest.

Minimize all sorts of risk facing your money (and how gold helps you better than typical investments).

Chapter 1

Exploring the World of Gold and Silver

IN THIS CHAPTER

Exploring reasons to consider gold and silver

Discovering strategies to use before you invest

Chaos. Mayhem. Crashes. Massive unemployment. Scandals and collapse. And that was only last week! The world throws plenty at us, and we must do what we can to get by. As they say, we can’t control the world, but we can control our response to it.

As a “Raving Capitalist” (I’m not kidding; that’s my website, too), I believe that building wealth and financial security is a two-pronged approach where you build your prosperity using both passive wealth-building strategies (having your money work for you such as with stocks, mutual funds, and options) and also active wealth-building (such as starting a home-based business in your spare time). You are your own greatest asset, so you can do plenty of things to assure greater financial security.

Given that, I’m delighted that you have this book in your hands. As part of your wealth-building approach, I want you to seriously consider adding some gold and silver, especially when you take a full, realistic view of what’s going on in our society, economy, and financial markets.

Yes, there’s ugliness out there. You and I can’t make the world pretty, but we can add some attractive positions in our assets so we can sleep better. Those positions start with some gold and silver. In this chapter, I briefly explain the benefits of gold and silver in today’s world and give you some actions to take before you jump into investing.

Considering Gold and Silver for Your Situation

In the modern age, most investors keep their investments in either paper or digital form, and each of them has a risk that hard assets such as physical gold and silver don’t have. Yes, we’re talking about gold and silver that you can hold in your hand and in your safekeeping and looks something like Figure 1-1, which shows gold and silver bars. (As you find out in Chapters 9 and 10, gold and silver also come in bullion and numismatic coins and commemoratives.)

Content: © Konstantin Inozemtcev/123RF.COM

FIGURE 1-1: Unlike most other investments, you can hold gold and silver bars for safekeeping.

In the following sections, I take stock of current global financial issues (pun intended) and explain how gold and silver can help your investment portfolio.

Before you invest in gold and silver, you need to realistically assess yourself and your financial status (assets, debt, career, and so on), and you need to ask yourself, “Am I adequately prepared for what is happening now and what will likely come my way tomorrow?” I have some suggestions you can start with later in this chapter.

Assessing the world’s financial issues

As I write this in August 2020, the world and financial markets look so radically different from what they looked like back in January 2020. I thought that the world had many problems and challenges that were percolating and financial bombs whose fuses were lit, but the game changed for the worse. Those events and conditions are part of the reason that gold and silver are a necessity in many portfolios.

Here is a short list of global issues and problems to be aware of:

• Unemployment is up. In January 2020, unemployment was at a 50-year low, but six months later, with 50-plus millions of lost jobs due to the COVID-19 pandemic and government lockdown, unemployment is at a multi-decade high. Although unemployment is coming down, there are still millions of jobs that may not come back.
• Because of job losses, more than 5 million folks are behind on their mortgage or rent. This will cause problems with debt, home sales, and more.
• Government debt is exploding. Federal and state/local debt is skyrocketing. This may lead to high inflation.
• Due to the government lockdown, hundreds of thousands of businesses were temporarily shut down for months, but a huge swath of those may never reopen.
• Pensions and Social Security are dangerously underfunded by trillions. If the federal government bails these out by printing trillions, that can also cause high and punitive inflation.

Before I ruin your day, I’ll cease adding more items to that list (there was more, you ask?!), but diversification and financial planning are urgently needed before the next crash in the stock market or the next leg of the economic downturn. Keep reading to see how gold and silver fit into this plan.

Knowing how gold and silver can help you

There are many solid, reasonable, profitable reasons to own gold and silver, and all those reasons are spread across this chapter. If you want a neat list of reasons, check out Chapter 18. But here I mention the top reasons that consumers and investors should take a hard look:

• Diversification: Having stocks, mutual funds, and cash aren’t enough to achieve true financial safety. Gold and silver are true diversification that complements your paper and digital assets and investment vehicles (Chapters 2 and 3 flesh this point out).
• Safe haven: Gold and silver (although more with gold) are considered a safe haven asset, meaning that in times of economic decline and uncertainty, investors move to these “safe haven” assets, typically precious metals and cash (the U.S. dollar). But the dollar (and other currencies) are now at risk (see the next point). That leaves … gold and silver!
• A guard against inflation: For 2020–2030, currencies are in danger of being overproduced in an attempt to resolve economic and financial crises unleashed due to the pandemic of 2020. This means … inflation! Gold and silver excel during inflationary times.

Taking Action Before You Invest in Gold and Silver

I know what you’re thinking: “Holy smoke! I’m so glad I’m reading this book!” So what should you do next? The following sections describe steps to take before you dive into the world of gold and silver investing. (You should be doing these anyway, and given recent market chaos and volatility, you should do them today.)

Reviewing your portfolio

You should understand what’s in your portfolio and why it’s there. If you’re talking about stocks that are part of your foundational, long-term positions, they should be quality stocks where the company is profitable, has a good balance sheet, and has products/services that are a necessity in the economy.

In recent years, I’ve told my clients and students (I teach about investing and speculating across the nation) to make sure that at least 80 percent of their investment stock portfolio is tied to “human need.” Those companies should be (profitably) selling goods and services that the public will keep buying no matter how good or bad the economy is. Think of things such as food, water, beverages, and utilities.

To find out more about prudent stock picking, check out the latest edition of my book Stock Investing For Dummies (Wiley). In this edition, I share what to look for when you’re choosing quality stocks, and I also give you the “heads-up” on what I see coming for 2020–2030, so you can be a step ahead of the crowd.

Boosting your cash position

Although cash can lose long-time...