Almost every day I’m asked about gold stocks. Some are looking for advice, some want to know exactly how to buy the stocks, and others want to see what my gold mining company picks are. These are important questions — succesfully investing in gold stock can provide incredible returns during a gold market, or… they can leave you shirtless.
This article’s purpose is to educate you with the built-in risks of investing in gold stocks, silver stocks, oil stocks, and pretty much any natural resource stock in the market. In a few days, I’ll be publishing a similar article explaining the benefits of gold stocks — make sure to subscribe if you want to get that guide as well.
The 5 Risks That All Gold Stocks Have
The fundamental problem with gold stocks is that they’re not nearly as safe as gold bullion. They shouldn’t be seen as a gold investment, because they aren’t gold — they’re just sort of linked to gold.
Here are some variables that exist with gold and silver stocks that don’t exist with straight-up bullion:
- Paper. Gold stocks are paper, meaning they’re not something you can reach out and touch. If the proverbial feces hits the fan, you’ll probably be left with some really nice paper — but no investment. This is especially true for international stocks. The more barriers between you and your investment, the less safe it is during economic calamity.
- Management. A bad CEO can make your stock get destroyed — even if gold bullion is still on its way up. If gold doubles, but you pick the wrong stock, you can be left without a dime.
- Exploration. Resource stocks are all about what they believe is in the ground. If their science is wrong, that’s a major hit to your portfolio.
- Regulations. Sometimes governments nationalize companies — essentially take them over. This is especially true for third-world countries. Investing in companies there can have you destroyed by government.
- Liabilities. They call debt a liability for a reason. Nearly all gold stocks have debt, with some having more than others. Of course, there are other financial issues that are concerning. Payrolls, the type of land owned, transportation costs, etc. Buying straight-up bullion doesn’t have any of these problems.
This isn’t to say you shouldn’t own gold. Just that gold bullion is a different investment than gold stocks. They’re different enough that I consider them different parts of my portfolio. When I say I have 25%+ of my portfolio in gold and silver, I don’t include stocks — I just include the actual bullion itself.
Next, I’ll be talking about gold stocks — and why it might pay to do some homework, invest in them, and where to get your research from. This next article could prove to be profitable to anyone willing to actually do their homework and research.
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