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Unless you’re buying gold merely as a hobby, it’s critically important that you perform a thorough evaluation before making any investment decision. MoneySmart, an initiative by the Australian Securities & Investment Commission, provides a very useful step-by-step guide that can help you make the best decision.
Step One – Plan Ahead
You first need to think critically of all the issues that can affect your financial plans. This will involve an assessment of such aspects as:
(I) Evaluating Your Personal Goals:
Do you have a clear plan concerning how much money you intend to derive from your assets within particular time frames? If you desire very high returns within short term periods, most likely precious metals wouldn’t be the best choice for you. This is because the value of such metals as gold does appreciate considerably, but only after long periods of time.
How much money you want within certain periods usually depends on what you intend to use the money for. Such intentions may vary from such short-term plans as paying for holidays to much more long-term plans, such as saving for your retirement. It’s also important to remember that the best investment strategy will always involve a diversified portfolio, which safeguards against any risks that various assets may have.
(ii) Evaluating Your Risk Tolerance:
Although you can choose the amount of risk to take, several other factors beyond your control can influence this. This involves such aspects as advanced age, your financial status and health issues. Fortunately, gold is one asset that would be suitable to people of varying ages and risk tolerance.
Step Two – Make A Choice
Making investment decisions would be much easier with prior planning. At this stage, you need to consider all aspects of your financial status. This will help you to clearly evaluate how your expenses and income are contributing to, or preventing you from achieving your goals.
Knowledge of your expenses and income will help you to cut down unnecessary expenses and harness your income, which you’ll use to build your assets. Once this is done, you can then evaluate the various options available to invest your money.
Various options exist, ranging from short-term investments (these are typically, low risk, low volatility assets, with yearly expected returns of 4 – 6 %), to long term investments (these are typically high risk, high volatility assets, with yearly expected returns of 8 – 8.5%). Gold usually falls under the medium to long term investment categories, since it continually increases in value, despite experiencing short-term price fluctuations.
Step Three – Monitor And Manage Your Assets
Proper monitoring and management of your assets will greatly impact your returns. This is because the related storage and insurance fees will contribute to overall costs of holding such an asset. You should also be aware of various tax issues, as well as the aspect of inflation, which can affect the actual purchasing power that you get.
It’s also likely that your plans may change along the way. For instance, singles may get married or you may get better investment alternatives. Regular evaluation of your investment will help in re-allocating your assets appropriately, to suit such changing needs.
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