Investing in precious metals is a significant financial decision that should not be taken lightly. Like any important decision, understanding the potential pitfalls and staying alert for red flags are essential for navigating the journey successfully.
When pursuing gold and silver as a reliable means of preserving wealth, staying vigilant is vital, as these assets come with their risks. For instance, both the Commodities Futures Trading Commission (CFTC) and the Financial Industry Regulatory Authority (FINRA) have highlighted the market’s vulnerability to fraud. Scams involving physical precious metals within self-directed individual retirement accounts (SDIRAs) have led to significant losses for numerous investors.
To guide you in acquiring gold and silver responsibly, here are six red flags and questions you should consider:
Unsolicited Offers
Be wary of cold calls, unsolicited emails, social media posts, or any unsolicited contacts trying to sell you precious metals. Reputable dealers do not resort to such aggressive tactics, which are often indicative of scams. Trust your instincts; if a call feels wrong, end it, and if an email seems suspicious, delete it!
Company Reputation
Research the precious metals company before engaging with them. This includes investigating the backgrounds of its founders and leadership team, its history, and any complaints filed through local consumer organizations, your state’s attorney general, or securities regulators. For online purchases, confirm the dealer’s physical address and business history to ensure they are actually fulfilling orders. Google will be your friend in this quest. Use it!
Salesperson Credentials
Many salespeople in the precious metals market lack the credentials to offer investment advice. You deserve professionalism and have every right to ask whether they are registered as a commodity trading advisor or investment professional. You can verify their credentials through appropriate regulatory bodies, such as the Financial Industry Regulatory Authority (FINRA) or the National Futures Association (NFA). These organizations maintain databases of registered professionals and firms, offering an additional layer of security for your investments.
The CFTC warns, “Precious metals dealers . . . are typically salespeople who are paid commissions based on the products they sell. Unlike financial professionals who have a fiduciary responsibility to you, these dealers are not obliged to have your best interests in mind. As a result, commissions and profits often drive their recommendations. This includes recommendations for IRAs or leveraged purchases that come with expensive monthly fees for administration, handling, storage, or insurance; purchasing collectible coins with high markups and low liquidity; and tapping retirement savings, which is where many Americans hold the bulk of their investment assets.”
If you’re looking for investment advice, seek out a credentialed professional.
Understanding Gold IRAs
Gold IRAs involve converting retirement savings into gold or silver bullion, which sometimes results in high fees and commissions. It’s essential to understand what you’re buying and all related costs. Request a comprehensive list of all fees from a potential company. If the company balks at this request, then consider that a major red flag. Transparency and easy access to educational resources is a sign of a reputable company. Examples of companies that do a good job educating their customers include 7k Metals, New Directions Trust Company, and American Bullion.
Pricing Transparency
Always inquire about the metal’s spot price and the premium you’re paying. Avoid deals with excessive spreads, as they can hinder your investment’s profitability. For instance, if the spot price of silver is $25 per ounce, but a dealer is offering to sell it to you at $60 per ounce, the $35 premium represents an excessive spread. Such a spread reduces the likelihood of profitability unless the market price appreciably increases. Reputable dealers usually maintain premiums much closer to the spot price, ensuring fairer transactions and better prospects for investment returns.
Additional Fees and Costs
Be mindful of all additional costs, including storage, insurance, and administrative fees. These fees can hide the investment’s true cost or relate to non-existent assets. For example, imagine investing $10,000 in silver through a company that charges not only a 5% commission but also high annual fees for storage, insurance, and administration amounting to $300. Initially, your investment’s value is effectively reduced to $9,500 due to the commission. Over a year, the additional fees reduce your investment’s value further to $9,200, not accounting for any potential appreciation in the silver’s market value. These layered costs can significantly impact the investment’s profitability and transparency, making it harder to understand the true cost and potential return of your investment.
Although the precious metals market is not immune to fraud and exploitation by bad actors, it has helped many people discover wealth preservation by choosing to do business with reputable and trusted companies. By keeping an eye out for red flags, conducting thorough research, and asking the right questions, you, too, can successfully navigate the journey of investing in gold and silver!
