During recessions and periods of high inflation, gold becomes a very compelling asset to add to your portfolio. The scarcity and historical role of gold as part of the money supply have made it a popular asset to add when the economy is in rough shape.
If you’re new to the asset, it can be intimidating to buy your first physical gold bullion. Buying gold doesn’t have to be a challenge, but it helps if you know where to start.
Below are mentioned the five rules you need to invest in gold bullion successfully.
#1. Allocate About 5-10% of Your Portfolio to Gold
A common rule of thumb is that if you want to invest in gold bullion, it makes sense to allocate about 5 to 10% of your portfolio to it. More than that defeats the point.
Bullion is an alternative asset that helps you establish a defensive position for tough markets and high inflation. Over-committing to gold can lock you out of high-growth stocks in a recovery. Investing in gold is all about adding balance and spreading out risks, including opportunity costs.
#2. Never Buy Your Gold in a Parking Lot
Beginners often worry about fraud or buying counterfeit gold. It’s a legitimate concern, but only if you buy gold from the wrong place.
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The safest and securest place to buy gold is a bullion dealer. There are many that have in-person stores where you can see what you’re buying, as well as options for buying online. Whatever you do, make sure you’re buying from someone with a good reputation and track record.
Avoid going to online classifieds that involve meeting with someone for the transaction, such as a parking lot. Often counterfeiters lure in unwary purchasers with prices that seem too good to be true.
#3. Keep Your Storage Solution Safe
Be sure to have an appropriate storage solution before you buy your first bullion. A 1 oz. gold coin is worth a considerable amount of money on its own, and it should be locked away in a home safe or a safety deposit box.
It’s also prudent to be discreet about owning gold. These tips will help you keep it safe:
- Check with the bullion dealer to make sure the packaging is discreet if you buy it online.
- Don’t talk about how you’ve invested in physical gold with acquaintances or strangers or suggest that you keep it in your home.
- Only share the combination with a loved one or someone you trust, although it should be shared in case of an emergency.
#4. Buy Insurance for Your Gold Bullion
The risk with physical gold bullion is that it is vulnerable to theft or fire in your home. Your home insurance policy likely isn’t going to cover it, so you should speak with your insurance company about a special policy or endorsement.
#5. Don’t Ignore the Taxes
The tax implications of buying or selling gold depend largely on where you live. In the U.S. and Canada, gold bullion is considered an investment asset, and sales taxes are not charged.
They can even be included in registered savings accounts, such as an IRA or RRSP. There are certain rules about what types of bars and coins you can include in these accounts that are worth learning. This can help reduce your tax bill for the current tax year, though you will have to worry about capital gains taxes when you sell.