What You Can Learn From Billionaire Gold Investors
The decision about what to invest in is perhaps the hardest decision that most investors make. The right decision can result in amazing asset growth and a comfortable retirement, while the wrong decision can lead to lackluster growth and even asset losses. Making the decision about what to invest in is a daunting one. But as difficult as it may seem, sticking to a few general principles can make your investment decisions much less difficult.
Whether you decide to invest in stocks, bonds, mutual funds, precious metals, or other assets, your investment decisions need to serve your best interests. Deciding what to invest in means assessing the amount of risk you want to take, the kind of asset growth you want, and how your investments will serve your overall financial goals.
Once you’ve decided on the mix of assets you want to achieve a properly diversified investment portfolio, you need to start thinking about what kind of investment vehicles you want to take advantage of. Whether it’s an employer-sponsored 401(k) program, a brokerage account, or a gold IRA, the way that you invest your money can have as significant an impact or more on your overall growth as what you invest in.
Investment decisions shouldn’t be made rashly. Too many investors look at daily price fluctuations and make snap decisions that end up harming them in the long run. Resist the urge to react immediately to volatility or to try to get rich quick. Investing is all about playing the long game, so slow and steady wins the race.
Make sure to diversify your investment portfolio and invest in assets like gold that will continue performing in the long run and will provide you with a safety net during times of economic turmoil. Markets can fluctuate erratically, and the last thing you want to do is leave yourself completely unprotected against the downside. Investing wisely can help ensure that your assets remain safe no matter which way the economy is going.
Defining Investment Choices
The first step toward investing is saving money. In days past, many people “invested” by placing their savings in a bank savings account and receiving interest. But in the current low interest rate environment and with official inflation rate figures consistently at 2-3% per year, you are often better served investing your money in other places, such as stocks, bonds, or an IRA.
Rather than letting your money stagnate in a savings account, you have to put your money to work for you, allowing that money to gain a return. Investing isn’t risk-free, and you’re not guaranteed to make money by investing. But the riskier the investment, the greater the reward if your gamble turns out to be successful.
That risk is one reason so many financial professionals preach the virtues of portfolio diversification. If you keep all of your investments in a single asset or a single asset class, one mistake could leave you worse off than you where you started.
By diversifying your assets, you protect yourself from price fluctuations in the market. If you’re invested in 25 different stocks, for instance, and 5 lose money but the other 20 make money, you still come out ahead in the end.
When it comes to deciding what you should invest in, the choices are endless. From stocks to bonds to mutual funds, the variety of choices can be staggering. Here are just a few examples of the assets that you can choose from when considering what to invest in.
Owning a stock means that you take an ownership share in the company issuing that stock. You may be one of thousands of shareholders in that company, but you’re still a partial owner. Traditionally, because of the high risk of bankruptcy, stock ownership has been among the riskiest investments. But the rewards are great, with stocks generally providing one of the fastest means of growing wealth.
When stocks hit it big, they often really hit it big. During boom times stock markets have made massive gains, such as the bull market of the 1980s and 1990s in which markets averaged nearly 15% annualized gains. The downside is that when stocks fall, they often fall far lower than they rose. And it can take years or decades to regain those previous highs.
The financial crisis of 2008, for example, saw major stock market indices losing over 50% of their value. The highs of late 2007 weren’t seen again until 2013. Just as bad was the dotcom bubble bursting in the early 2000s. The highs of 2000 weren’t seen again until 2006, just a year before the next market top. In fact, between 2000 and the beginning of 2013, the Dow Jones only grew a total of about 15%, or about 1% per year.
That was a horrible time for stock market investors, but that’s the reality of stock markets. There will be bull markets and bear markets, and investors hope they don’t invest in a bear market. Overall, the historical growth rate of stocks helps override most investors’ concerns about stock market losses, which is why so many investors look at stocks when considering what they should invest in.
Bonds are a common investment alternative to stocks, and they are popular because investors receive regular interest payments until the bonds mature. Bonds typically aren’t as volatile as stocks, but different bonds still come with investment risks.
Investing in the safest bonds, such as US Treasury bonds, means gaining asset growth with little to no risk of default, but you’ll only be seeing 2% growth at best. Junk bonds, those rated to be at the highest risk of default, generally earn much higher returns, although many today are only gaining 6-8%. In between, you have a variety of corporate bonds, municipal bonds, and other bond issuances with varying rates of return and risk profiles.
Because of their generally lower rate of return as compared to stocks, bonds are generally used to diversify and de-risk an investment portfolio. In general, as investors age, they tend to invest more in low-risk investments. Thus, many portfolios will gradually move out of stocks and into bonds over the course of an investor’s lifetime. When looking at what to invest in, think about how much risk you want to take on, and where bonds can help you in making that decision.
Cash can be money under your bed, a checking or savings account at a bank, or cash equivalents such as money market funds. These investments generally offer little to no return, but they still play an important part in an investor’s decision-making process.
For one thing, when you’re buying and selling assets, you’ll often need to park the funds you’re using somewhere safe. That means having a cash account handy to fund new purchases or to receive proceeds from asset sales.
On the other hand, you’ll often see many investors moving into cash when markets look like they’re about to plunge. Warren Buffett, for instance, has recently stockpiled over $100 billion at Berkshire Hathaway, keeping his money out of markets until he has a better sense for which way markets will go and where the good buying opportunities are.
As a long-term investment asset, cash is not a good choice. Because of inflation, holding cash means losing purchasing power each year. But as a short-term investment until you decide where you want to invest your money, investing in cash or its equivalents could be a good play.
Gold is often viewed as the contrarian’s choice, or the choice of those who always think the economy is about to collapse. But gold offers benefits to every investor, from protecting against inflation and currency debasement to protecting portfolio wealth during times of economic instability.
Gold often performs well when stock markets perform poorly, which is why investors flock to gold when a stock market crash is just around the corner. But even when stock markets are doing well, gold can perform well too. Over the past 20 years, gold has been the second-best performing investment out there, with roughly double the gains of stock markets.
One popular method of investing in gold today is through a gold IRA, which allows investors to invest in gold through an Individual Retirement Account just like the ones they may already be used to. By investing in gold through a gold IRA, investors can use pre-tax money to invest in gold, defer gains on taxation until they take a distribution, and take their distribution in either gold or cash.
Gold IRAs offer the flexibility of performing a 401(k) rollover or IRA rollover, rolling over assets from existing 401(k) or IRA accounts that you already hold, allowing you to protect assets that you already have invested without having to pay taxes on those rollovers. For investors looking for a hedge against falling stock markets, funding a gold IRA in that manner could be a very good choice.
Retirement accounts, such as IRAs and 401(k)s, can be great investment choices for those looking to invest for the long haul. Unlike normal brokerage accounts, retirement accounts offer various tax advantages, such as being able to defer taxation on any accrued gains until retirement. Or in the case of Roth IRA or 401(k) accounts, investments are made with after-tax dollars, gains accrue tax-free, and no taxes are paid at retirement.
Tax-advantaged retirement accounts can be a very important tool for investors to build up their retirement savings over time. For those entering the workforce and looking forward to 40 or more years of work, saving, and investment, retirement accounts can help them build up huge amounts of retirement savings if they make the right investment decisions.
Many employers today offer matching contributions to workplace 401(k) plans, which is essentially free money for workers. It’s not uncommon for employers to match 4-5% of your salary in contributions, which can significantly increase the amount of money you’re able to save and invest each year.
There are only two real downsides to retirement accounts. The first is that some retirement plans may not offer as many investment choices as if you decided to strike out and invest on your own. The second is that traditional IRA and 401(k) plans will require you to start taking required minimum distributions once you turn 70 ½. That means that you’ll want to consult with a tax adviser once you near retirement age to make sure that your investments don’t get taxes any more than they need to be.
Regardless of how you decide to invest your money, the key to investing is starting as early as possible and diversifying your portfolio to minimize or eliminate potential losses. Whether you decide to invest in stocks, bonds, cash, or gold, or invest through a workplace retirement plan, physical gold IRA, or brokerage account, the benefits of wise investment cannot be overstated. Contact the experts at Goldco today to find out how you can best invest your money to make sure that you’re able to enjoy the fruits of your hard work, saving, and investment.