Buying gold bars and coins: Mistakes to avoid

Gold invesing can be a great way to earn steady returns and protect your portfolio from losses during uneven economic times. Gold has historically retained its value through market ups and downs, it's globally recognized and it's a highly liquid asset. And in tough financial times, as we've experienced over the past three years, gold can give investors some much-needed peace of mind.

One easy way to invest in this precious metal is by buying gold bars and coins. It's a straightforward process, but that doesn't mean you should go into it blind. To get the most from your investment and avoid unnecessary losses, it helps to know the common mistakes people make when buying gold bars and coins so you can steer clear of them.

Learn more about gold investing with this free information kit.

Buying gold bars and coins: Mistakes to avoid

Don't make these common errors when investing in gold bars and coins.

Not buying from a reputable dealer

One of the biggest mistakes people make when buying gold is buying from unreliable sources. There are many dubious dealers out there who sell fake or low-quality gold at high prices. It's crucial to buy gold bars or coins from a trustworthy dealer to ensure it's genuine and high-quality. There are many top gold companies that can help you, whether you're a beginner or savvy investor.

Before making any purchase, research established dealers and check their reputations. Read customer reviews, review the dealer's credentials and certifications and contact the dealer to get a sense of their transparency and professionalism.

Not understanding the gold market

One of the most common mistakes investors make when buying gold bars and coins is not knowing the current market value of gold. This can lead to paying too much or missing out on a good deal.

A working knowledge of the factors that affect gold prices can help you determine the best time to buy. But unlike assets such as stocks, timing isn't as important when it comes to buying gold as getting a fair price whenever you buy it. Gold can always be a valuable part of your portfolio — if you buy it wisely.

So, be sure to monitor the gold market and look up real-time prices before making a purchase. Gold bars and coins do come at a premium, but that premium should be reasonable and in keeping with competitors' prices. Check out Costco, too, which is now selling gold bars.

Not checking the purity and authenticity

You also want to make sure the gold you purchase is real and worth what the dealer says it's worth.

Familiarize yourself with ways to check gold's purity and authenticity, such as trying to pick up a gold coin with a magnet (real gold is not magnetic). Look for mint marks from established mints like the U.S. Mint, Royal Canadian Mint, Perth Mint and South African Mint. Ask the dealer for a certificate of authenticity, too.

Don't give in to high-pressure sales tactics or hype over a gold piece's rarity. Take the time to do a thorough inspection yourself and make an informed decision.

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Not considering storage and security

Once you own gold bars and coins, it's essential to keep your investment safe. Get a high-quality, fireproof home safe or put your gold in a safe deposit box at a bank to protect it from theft, loss and damage.

In addition, be sure to insure your gold. Homeowners insurance policies typically won't cover the total amount of your investment, and bank safe deposit boxes usually aren't insured. So it's up to you to purchase the added protection you need.

Not diversifying your portfolio

Gold can be a great stabilizing element in your portfolio, but it should only be one element.

Gold may generate dependable returns, but it's not a high-growth asset. To get the best balance of risk and reward, it's crucial to diversify your investments across multiple types of assets. Experts recommend keeping 5% to 10% of your portfolio in gold and the rest in other assets, such as stocks, bonds and real estate.

The bottom line

Buying gold bars and coins can be a smart strategy for investors seeking to shore up their portfolios and preserve their wealth over the long term. But you must be careful to avoid common mistakes, like buying from an unreliable dealer or failing to store and secure your gold properly, to truly profit from your investment.

As with any investment decision, a little bit of patience, knowledge and diligence goes a long way.