Good day to all. Is it really possible never to lose money in the investment world? Well, yes! After all, the world of investing is a win-lose world right? And if you lose enough times, you will surely learn something right? Oh and you can learn from the best and don't reproduce their mistakes right? Wrong.
Here's how I came up with my strategy for never losing a single cent on physical gold trading. To start off, gold is expensive. Don't believe me? Well, don't take my word for it, go to your nearest pawnshop and see how much they charge for just 10 grams of this yellow stuff. So do your research before you start buying or selling this.
Right, now how long has this metal been around in history? Don't know? Or can't recall a time it WASN'T in history books? Alright alright, so it has been around since forever. What does that have to do with my formulation of my strategy? Simple. If it has been around for ages, and is still used in pretty much the same manner today as it was ages ago, then it is pretty much not going to be useless for the foreseeable future.
I'm still sensing some clueless faces. Dude! So what if it is not going to be useless? How can I make money from it? Now, think of it this way, if it will still have value, then isn't it the case that its value is definitely not going to drop to 0? See where I am going? Unlike a stock, in which the underlying company can go bust and you essentially lose your entire capital, gold will not go to zero. So any price movement against your position is not an indication of doom and gloom. Moral of the story? Do your homework on what you want to invest in.
Now, you're going to ask me, so gold will not drop to zero, now what? Next, just employ a simple strategy that works with all things that do not completely lose value: Dollar Cost Averaging or DCA. DCA basically means averaging out your cost. There are 2 types of DCA which people employ. Averaging by time versus averaging by cost.
Averaging by time is the most commonly used way of averaging, also known as the "set it and leave it" way. What you do is you simply invest a fixed amount of money every time period into the metal. Over time, you will ride out the price fluctuations, and your average cost will go down. Then you "show hand" (sell all) when you want your money back.
Averaging by cost means you average your cost in one direction - down. If the price goes to your favour, sell. If it goes against you, buy. This is slightly different in the sense that it is a shorter term play than averaging by time. If you DCA by time, you have to ride at least one downtrend before you are good to show hand. Whereas if you DCA by cost, you can show hand if you happened to catch the uptrend.
Me personally? I DCA by cost. Like I mentioned earlier, gold is expensive. Buying in small amounts will see huge spreads, which prolongs the time taken to break even. So find a dealer that gives you a good spread and be on good terms with him. And buy enough that your spread is low. Buying 5 grams or 10 grams is not worth it. Start with 1 troy ounce. If your bank account has more numbers to the left of the decimal, try 100 grams or even kilobars. You get my point. The bigger you buy, the lower your spread.
So that sums up my strategy for physical gold trading. It is commonly used on stock indices as well, especially the DCA by time. Thank you for reading my friends, and have a good day!