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Is It Crazy to Buy Gold Coins For Investments?

Is it crazy to buy gold coins for investments? - TaxACT

Have you ever wanted to buy gold coins for investing? Or maybe just as a hobby?

In the days of instant, online stock trading and financial accounts, sometimes money seems almost make-believe.

We no longer even have a passbook to hold on to. We certainly never see most of our money as a tangible object.

That’s why there’s something very satisfying and solid about investing in and wanting to buy gold coins.

There’s nothing like going to a coin shop, coming out with a small-but-heavy paper bag, and then taking it home and feel the weight of each coin.

Some people may look askance to buy gold coins in this day and age, however. Isn’t that a little crazy?

Here are some advantages and disadvantages of buying gold coins as an investment:

Advantages to buy gold coins

Gold and other hard metals have always been a time-honored part of traditional investment plans. Here’s why:

  • Gold tends to go up when other investments decline, providing a stabilizing effect for your portfolio.
  • Gold is a bulwark against inflation.
  • You don’t have to pay capital gains tax until you sell.
  • Nobody has to know you have it – if that matters to you.
  • In worst-case financial scenarios, such as massive currency devaluation, you can use gold and silver to buy and sell. That may sound crazy – but it has happened in other countries.

Disadvantages to buy gold coins

On the other hand, gold has some disadvantages:

  • A thief could take your gold if you’re not careful.
  • Unlike stocks and bonds, a purchase of gold is not an investment in company growth. You won’t get dividends or interest from tangible gold.
  • You may have to wait years for gold to go up in value.

How to buy and keep gold coins

If you decide to buy gold coins, get it from a reputable dealer or financial institution. We wouldn’t buy gold coins on Craigslist, but that’s just us.

If you buy gold coins from individuals or from anyone else you’re not sure of, have the gold coins’ authenticity verified first. You don’t want a collection of gold-plated lead.

U.S. gold coins come in one, one-half, one-quarter, and one-tenth ounce denominations. You pay a “premium” over the price per ounce when you buy gold coins, which is how the dealer makes a profit.

You may pay a higher premium if you buy gold coins less than one ounce each. You should generally buy bullion coins, such as the American Gold Eagle, Canadian Gold Maple Leaf, or South African Krugerrand.

Collector’s coins, called numismatic coins, are a different game than bullion gold coins. They can sell at a very high premium, and their prices are dependent on more factors.

Unless you are very knowledgeable about collector’s coins, stick with bullion coins.

Once you have the coins, you may be tempted to run the coins through your hands, like Ebenezer Scrooge.

But of course you won’t – you should leave coins in their cases, away from scratches and fingerprints.

Don’t even think of hiding gold in your house, unless you have a safe. Thieves know where to look, or they can find it with a metal detector.

For very little money, you can rent a safe at a bank for your gold and other valuables.

Don’t get carried away buying gold. Perhaps 5 to 15% of your portfolio should be in hard assets like gold coins.

Most investors want the majority of their portfolio to be in growth funds, stocks, or other investments. That’s a good way to get the best balance of risk and return.

Other ways to invest in gold coins

You can even buy coins with your Individual Retirement Arrangement (IRA). You won’t be able to take these coins home.

Your IRA administrator will keep them in a vault for you. Coins must meet standards of purity to qualify as IRA investments.

You can always invest in gold without actually bringing home any gold coins.

By purchasing gold mining stock, gold certificates, or exchange-traded products, for example, you can gain the advantages of gold’s hedge against inflation, without lugging heavy gold coins around and worrying about where to keep them.

When was the last time you were in a coin and collectibles shop?

Photo credit: chrisolson via photopin cc

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About Sally Herigstad

Sally Herigstad is a certified public accountant and personal finance columnist and author of Help! I Can't Pay My Bills, Surviving a Financial Crisis (St. Martin's Griffin). She writes regularly at CreditCards.com, Bankrate.com, Interest.com, RedPlum, and MSN Money. She is an experienced speaker and a member of Toastmasters International. Follow Sally on Twitter.