What is Dollar Cost Averaging?

There is  a time honoured strategy for buying precious metals, and that is dollar cost averaging.

 When it comes to investing in any market, timing when to buy into or sell out of an investment becomes an important decision.

After all, even the best professional traders can’t accurately pick the top and bottom of the market, it is a well known fact that even the best traders only have a 55% success rate.

With the ongoing price volatility in the precious metals, you may want to consider how dollar-cost averaging can help you smooth out the price at which you enter the market.

By sticking to a regular investment plan, you’ll be using the volatility of the market to your advantage. This simple concept is known as dollar-cost averaging (DCA)

HOW DOES DCA WORK?

Dollar-cost averaging involves buying gold and silver at different prices by making regular purchases over time.

You purchase more ounces when prices are lower, fewer when prices are higher, and your cost of investing averages out over time.

Here’s how it works:

1.         Divide:

Take the total amount of money you are prepared to invest and divide it by four or five (4-5 intervals being a good entry period). You can use that amount to make your purchases at each interval. For example, if you had $100,000 to invest, you set aside 5 lots of $20,000 buy-ins.

2.         Invest:

Consider making your purchases around the middle of each calendar month, as that is normally when the best buy-in price points for metals occur. In our example, you would invest $20,000 in the middle of each month, for 5 months.

3.         Stay Calm:

If you use DCA, it becomes less important for you to choose the “perfect” time to make your investments. By consistently depositing relatively smaller amounts of money, you reduce your vulnerability to price fluctuations and free yourself from the worry of trying to “time the market.”

Do I have to pay tax on that?

I thought I might spend some time on the subject of tax on precious metals, as it affects everyone who has purchased them in some way. 

Disclaimer: I am not a tax consultant or accountant, and the opinions given in this article are my own, you should discuss your own tax situation with an accountant.

I regularly get asked, "Do I have to pay tax on any profit I make in PM's?" - my answer is always..

 It depends.  It depends on the purpose of your purchase and whether your trading patterns support it.

This weekend the Government released Budget details of the tightening for tax purposes the property investment market, which apart form creating new disclosure requirements for foreigners, also cleared up the old  ambiguous "intent based" system and replaced it with a clear - hold the property for 2 years or pay tax on the price appreciation. This is not a capital gains tax, rather a tax on income, The IRD views trading in real-estate  as a taxable activity, if you buy a property to rent, then the rental would become the taxable activity

This got me really thinking about precious metals and tax, how would the IRD treat a holding of gold for tax purposes? To the best of my knowledge, the test as to whether you would be liable to pay tax or not, would be "intent based" that is to say, what was your reason for buying gold and silver in the first place? 

In my opinion there are only two reasons for people buying precious metals;

1. To make a profit
2. As an insurance against a future financial disaster 

It is really important to understand which camp you belong to, as it affects not only your potential tax obligations, but how you perceive price rises and falls. If you are the type of investor that purchased primarily for a profit, falling prices would likely have made you anxious and wonder if you had made the right decision. On the other hand if your primary reason for buying was long term wealth protection, you may not concern yourself too much about a price fall, and may even consider adding to your "insurance".

As a person who is a "precious metals professional" the IRD's tax position on my precious metals trading is clear, the IRD deems me to be involved in a taxable activity, regardless of whether I buy for my own account.

 The position of non-professionals requires more consideration. Unlike property, there is very little paperwork required to buy and sell PM's, and Precious Metals Dealers currently have  no disclosure obligations to any agencies. This would mean the only plausible way for "intent"to be determined  would be your trading history, and any notes that you may have made regarding your trading activities. The advice I offer to clients that ask questions on taxation is, be very clear to diarise your intent if you are acquiring metals for passive wealth accumulation, and take care not to actively trade, as your tax position can change. The second thing I say is every ones tax position can be different, you should discuss this matter with your accountant  

I'm sure all our clients are wealth accumulators, but that is not to say a explosive upward movement in the precious metals price would be unappreciated.

until next time 

Tony. 

Why Invest In Gold or Silver?

Welcome to my first blog entry! I will be posting regularly about issues, tips and advice on the bullion industry. My aim is to help people who want to invest in Gold or Silver and don't know why they should invest in precious metals or even how to go about it.

Please join me on my blog and lets have some fun with these wonderful metals I love so much!

Gold or Silver Investing:

Investing in physical Gold or Silver may seem quite daunting at first, however it is really a very simple process. Having a good sense of what you want gold or silver to accomplish is helpful. Lots of people start investing in Gold or Silver simply for its stability and flexibility. Gold has been proven to be extremely stable during war, which indicates why it is more secure than other types of investment classes.

Gold or Silver is more than a commodity, it's a currency and a very very old one at that. It is the only currency not controlled by Governments or created by Banks. All other currencies in existence today are "fiat" currencies and do not actually represent anything tangible; they are created by banks and approved by governments. A good reason why investing in Gold or Silver is such a good prospect!

Which type of product and whether Gold or Silver are the best investment option are decisions which should be made with a financial advisor or an advisor within a bullion group you trust and the only way to do this is to start with a small amount and learn the process with a group that is convenient to you or you have been referred to.


Whatever you do, take your time and listen to the experts... it's in their interest to advise you correctly so that you prosper and return.


Happy investing!


TC