The world of investing is a mystery for those who know nothing about it, and it can be incredibly complex even for the people who have done it for the longest time. The idea behind investing is, in fact, not as popular as other financial practices, mainly because it involves a level of risk. Saving, on the other hand, is virtually one of the safest approaches to accumulating wealth, but it has its disadvantages.
Saving is often perceived as a short-term approach to achieving a goal, as shown over here. The main objective of saving should be achieving a financial status in which you can deal with undesirable situations, or where you can improve your financial situation through either paying for higher education, creating a business or a company, improving your professional prowess through affording education, equipment and tools, and, of course, investing.
Investing, on the other hand, although it does involve risks, has a much larger range of profit if done correctly. In the long-term run, it is also a much more feasible way of attaining financial freedom and completing plans involving retirement.
Even then, for newcomers, it can be really difficult to enter the world of investments without feeling intimidating. There is, however, a way to get used to the idea of investing without having to engage in risky transactions, and one particular way that is fairly popular among investors involves the purchase of precious metals.
Today, we will focus on discussing one specific method to go about it, which involves purchasing gold coins, and discuss why it can be a good way to start your investment journey thanks to something known as diversification.
The High-Risk High-Reward Nature of Investing
There’s one particular misconception people tend to have about investing, and is the fact that people tend to believe that you need a considerable amount of money to start investing. Although this is true to a certain extent, you can start investing with as little as $50 as long as you understand that investing tends to be a high-risk high-reward practice.
What does this mean? Well, the more money you put into it, the more profit you can generate through investing, but it means that you will lose more money if the investment goes south. This rule does not apply in all cases, but it is certainly a very palpable thing for most investment careers.
Even then, investments enter different categories, and there are different practices meant to ensure protection against these possible events. Take, for example, short-term investments! Also referred to as trading, it is a process in which you invest in something, only to trade for money or another asset as soon as you consider it a profit, even if it is small.
This requires you to invest a lot of time and effort into it, but can generate money in a very quick manner, in comparison to long-term investments. And because you usually invest small amounts, the risks of you losing a lot of money are significantly lower, although this means it is very unlikely for you to generate a lot of money as well.
But when it comes to long-term investment, you usually invest a lot more and wait until a large profit can be generated. Even then, people tend to approach the idea with diversification in mind, and here’s where purchasing gold coins enter the play.
The General Idea Behind Diversification
Diversification can be described as a safety net that protects your wealth from unexpected fluctuations in the market linked to assets that you invested in. The basic idea is pretty simple: Instead of investing 100% of your money into 1 asset, you invest 20% of your money in 5 different assets. This makes that, if one of the assets drops in value, you won’t lose as much money, essentially protecting your wealth in the process.
This, of course, means that, in case one asset rises in value considerably, you won’t earn as much of a profit, but considering how unlikely this scenario is to happen, this is not really a problem that you are likely to face.
In case you want to learn more, however, I recommend you to check out https://www.investopedia.com/terms/d/diversification.asp for more details on the matter. The next topic would be the actual link between diversification and gold coin purchases.
Gold Coins as a Diversification Asset
Although investing is definitely intimidating at first, there are some assets that can provide a level of safety that is pretty hard to obtain in normal circumstances, and the most popular choice tends to be gold. In the case of gold coins, they work in a very similar manner, with some differences related to the rarity of the coin as well as their quality and weight.
Even then, gold coins and traditional gold bars are pretty similar in the fact that they are relatively safe forms of investments because they are both rare, and required in multiple industries.
As a form of diversification, precious metals such as gold are generally well perceived as long-term assets because, contrary to money, they are unlikely to deal with negative fluctuations in the market that reduce their value.
On the same note, having a solid idea of what are some of the best gold coins to buy can greatly influence your experience, so it is recommended to do some research to decide which options are best for your particular circumstances.
Ideally, though, you should perceive the purchase of golds as long-term transactions, and they are generally great alternatives to go for when you are either planning a 401k or traditional IRA rollover to a gold-based individual retirement account since they provide a lot of tax benefits as well as great advantages for long-term plans that surpass the 10-20-30 time frame.
As it is now, gold’s demand is only increasing, and people are slowly becoming aware of the fact that gold is a limited resource that will most likely become even more valuable in the future, and because of its relatively stable nature in the market, is very unrealistic for its price to drop in the next couple of decades, thus, it would be wise to diversify a fraction of your wealth towards investing in gold and its many different presentations.