I read a few precious metals forums on the internet and I'm always surprised by how many investors lack a sound investment strategy. If you believe that the fundamentals support an ongoing bull market in gold and silver, you should make a plan to ensure that you profit from your market analysis.
First, decide if bullion investing is appropriate for you. Thoroughly investigate the case for precious metals, both pro and con. You may have a registered financial advisor you can trust to help you. Don't neglect due diligence.
Once you are convinced that precious metals are a good investment, your second decision is what percentage of your investment capital should be committed to silver and gold. Is 10% of your capital enough, or is 20% better? Do you want to buy any shares or just bullion? Do you need to sell some risky or underperforming assets, or will you just start spending excess cash flow now?
Third, determine the timing of your purchases. Will you buy a 1/4 ounce Gold Eagle every week when you get your paycheck, or a 1000 ounce silver bar quarterly? You may prefer to spend the same amount every month, buying fewer ounces as the price rises. This strategy is called dollar cost averaging, or the constant dollar plan.
Maybe you plan to time the market. Will you use technical analysis or Elliot Waves to plan your entry points? If this is your strategy, make sure your analysis is realistic and flexible. I know some silver bugs who have been waiting 18 months for silver to drop back to $5.50 an ounce, and I doubt they will ever see it happen.
Fourth, and most importantly, buy from a reputable dealer. This is especially important if you're purchasing over the internet. Look for a well-developed website with a lot of helpful information and frequent updates. For example, does the site have useful articles and references from happy customers? Can you call and email the owner or a manager if you have a question? Are your concerns addressed swiftly and thoroughly?
The merchant should tell you the price of your items, the amount they have in stock, and the estimated ship date BEFORE you order. Some dealers don't order your coins until after your check clears. If their supplier is slow, or the merchant needs your payment to cover other bills, you may wait weeks for your metals.
I discovered this fact personally when I first started accumulating silver. I ordered from a large dealer who had been in business for over a decade. I bought 60 Silver Eagles, spending a relatively small amount to test the organization. I was told my silver would ship as soon as my check cleared. When I didn't receive my coins a month after the merchant received my check, I called to ask for my order status. I left messages and didn't receive return calls. I was given various excuses for why my silver was never mailed. An employee eventually admitted that my silver wasn't in stock when I ordered. It took another week to get a tracking number for my package.
While I did receive my Silver Eagles eventually, I would never do business with that dealer again, no matter the price. It's not worth the repeated calls, and the worry that you'll never get your coins. Precious metals are your portfolio insurance plan; don't speculate with your insurance. When a company lies to you about your order, you can't trust them. Longevity doesn't ensure honesty. Not surprisingly, that dealer has multiple complaints about him on many precious metals forums. A search for complaints about that company on Google would have warned me about their business practices, and saved me a lot of frustration.
Fifth, be wary of extreme bargains. Highly worn coins, or unusual weights and purities can be difficult to resell. Standard products have a slight premium for a reason. Strive to buy at a fair price, not the absolute lowest price. While you may find a great deal at a neighbor's garage sale, this is an inefficient way to accumulate precious metals.
Trying too hard to save an extra nickel may leave you underweighted in gold and silver when big moves occur.
Sixth, don't commit all your funds at once. If you spend all your free capital at the top of a market move, you'll probably be upset if the price drops 10%. Always save a little cash to pick up a bargain if there's an unexpected fall in price.
Seventh, don't forget to make a sales plan! When will you sell your bullion? Do you plan to accumulate until silver or gold hits a certain price, then dump it all? Will you sell some on strength and buy on weakness to take profits? Will you sell half when you start a new business or buy a home? Too many investors buy when the market rises parabolically, then sell in disgust during a sharp drop. If you develop a solid plan, you will be more likely to make rational investment decisions, and not let your emotions rule.
Copyright © 2005 Jennifer Barry
If I've created more questions than answers in your mind, I've succeeded with this essay. Each investor has a unique situation, and must decide for him- or herself how to allocate resources. As a silver dealer, I've obviously decided that silver is the best investment, followed closely by gold. I believe that a precious metals investment plan that's strong but flexible will lead to great returns in the future. The spot price of silver has already gained 77% since 2001, while gold is up 66%, and the fundamentals for both metals continue to support rising prices over the long term. Make your precious metals investing plan today and start profiting!
