Silver and Gold are Pretty and Shiny, But is the Allure Driven by Fear in the Economy or a Sound Investment Decision?
I have been researching and reading and researching some more on the commodity market and I have no idea what to do. I admit that I am a novice at investing. However I do not deny that it will be an essential component in my journey to financial freedom. My experience investing consists of this: I got burned in 2000 when I invested in a four star mutual fund, thought that I didn’t need to watch it, then it tanked with the rest of the stock market. Beyond that, I tried day trading a few individual stocks and felt like I was uneducated and gambling rather than making sound investment choices. My main problem is, right now I just don’t know exactly where to begin on my limited funds. I have read contradictory things, and still have a lot of financial lingo to learn.
The Gist of the Typical Advice in Many Personal Finance Books and Blogs:
- Save for an emergency/contingency fund (Various advise between 3 – 8 months expenses… That’s a lot of money sitting there not earning anything!)
- Max out investing in your company’s 401K, or at least enough for the company match (Diversification choices of a mutual fund or another mutual fund)
- Next make sure you have a Roth IRA (Roth’s are great for the young investor because when you take your money out way down the line, your earnings are not taxed)
- Then beyond that, there is a lot of debate what to invest in next
- Most financial gurus suggest your best investment is in your financial and occupational education (That’s what I’m focused on)
I am happy to have some liquid funds saved aside for contingency funds. I do invest for my company’s 401 K match, but I am not happy with the selection of funds available, it is too limited. Also, I hear over and over again that Mutual Funds take too much out in fees, and over 70% of mutual funds under perform against the S&P 500 Index Fund. I have monitored the trend of my 401k funds against the NASDAQ and the S&P 500 and it is true, they vastly under perform. So, needless to say, I am disillusioned with my 401K as a sound investment (not to mention) retirement vehicle.
So Where Do Commodities Fit Into the Mix?
First off, do not consider investing in silver, gold, platinum, oil, etc without doing a lot of research first. There are a lot of people out there trying to scam people in this market. This is why I haven’t invested in it yet, because I am very cautious and skeptical with my money. You work hard for your money, don’t let it go with out a lot of research.
Here are some pros and cons that I’ve gathered to the choice of investing in silver, gold and other commodities.
Pros:
- They can serve as a hedge against inflation (many predict inflation to increase, investors will flee to commodities and the US dollar value will continue to decrease)
- They can be a good investment choice for diversification if you have most of your investments in paper assets (Funds, Bonds, Stocks)
- If you have the physical commodities, you do not have to worry about paying taxes on selling them them (Interesting fact!)
Cons:
- You pay a high tax rate on them if you have owned them less than a year (28%) in ETFs and withdraw (this can be avoided through holding shares in a Roth IRA fund)
- If you have large quantities of the physical commodities, they can get expensive to secure and protect
- The 5 year market trend for most of these is rather volatile (ie, they still carry risk), though seemingly on an upward curve the past year, the 5 year trend is still quite volatile for many commodities
- Often the price of entry to gold, platinum, etc is rather high. (You can go buy a few silver coins, but that doesn’t seem like a true investment to me, just something to add to your coin collection)
For a thoughtful approach to reviewing the balance between commodities, the dollar and inflation , consider reading this post by Dream Manifesto.com on Is Our Monetary System Near a Singularity?
I’d love to get more valid resources, and I will update this post as I read more books and articles on the topic. Let me know your thoughts.
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