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The Truth About Money
By Ric Edelman
Golden Rules for Investing in Precious Medals

As the price of gold began to approach its all-time high, I started getting predictable questions: Should I invest in gold, and if so, how do I go about it?

Yes, gold belongs in your portfolio. And don't stop with gold - include precious metals and minerals as well: silver, platinum, zinc and copper.

There are several ways to invest in gold. You can buy a mutual fund or exchange-traded fund that invests in gold-mining stocks and bullion (which is what we do for our clients), or you can buy the metal itself. You can purchase coins or wafers; gold bars are too heavy (and too expensive) for most people.

The most common coins are the American Eagle, Canadian Maple Leaf and South African Krugerrand. When you buy them, their cost is based on the current price of gold, which - as of this writing - is in the neighborhood of $800 an ounce (despite the fact that the American Eagle is minted in denominations of $5, $10, $25 and $50).

Expect to pay a premium when you buy the American Eagle, because the coins are very popular.

You might also consider rare coins. But you should view numismatics (study or collecting of money) as much of a hobby as you do an investment; it requires a good deal of time and study to know what you're doing. Locating a reputable dealer can be a big help.

With the purchase of any type of coin, you must be careful to store your investments in a safe place so they won't get lost or stolen, which is not a concern when you buy gold via mutual funds.

We often recommend that clients place 5 percent of their assets into natural resources, which not only includes gold, but also other precious metals, oil and gas, minerals and timber products - a good diversification tool. However, do not buy gold simply because it's at - or near - its all-time high, or because you think (hope) that prices will rise further. Such an attitude is evidence that you're speculating, not investing. If you make a purchase based on current market prices, you're probably buying at the wrong time, and you're equally likely to sell at the wrong time.

Tax-free?

Be skeptical of people who promote the benefits of owning gold. A recent caller to my radio show said a gold promoter had told him that investing in gold yielded tax-free profits.

That's true - if you cheat.

Selling any investment for a profit creates taxes, and you must report profits on your tax return. This promoter, though, was alluding to the fact that transactions involving gold are anonymous; there is no automatic reporting to the Internal Revenue Service. (The IRS knows when you buy and sell securities such as stocks, bonds and mutual funds, but it isn't informed when you buy and sell gold.)

So when a coin dealer tells you that gold is tax-free, he's saying it with a wink, because it's tax-free only if you cheat on your tax return.

Not only are taxes due if you sell gold for a profit, the tax rate is higher than for profits on the sale of stocks, bonds and mutual funds. Capital gains on registered securities are taxed at no more than 15 percent, while gold's tax rate is 28 percent - almost twice as high.



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