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This article is a guest post by Shaun Connell.

One of the things that can consistently make investing a difficult practice is timing. If it was easy to time everything perfectly, then everyone would be doing it and we would all be rich. Unfortunately, there are no exact answers on when you should invest in gold. There are some things to keep in mind, though, that will help you determine the right time for you to get involved.

In the end, the question of investing in gold right now comes down to your opinions regarding economics, and the future of the dollar. Do you think that it’s going to be strong in the coming months? Do you think that the down slide is bound to continue? These are questions certainly worth taking into account.

What’s the fate of the US economy?

This is a big question to chew on and it’s one that you won’t have a definitive answer for — like all investments, this is where the risk comes into play. It depends upon how you understand the economy and where you see things going next. Some people who are considered experts within the economics field will tell you that the US economy is heading for some trouble in the coming months.

Everyone knows that things have been rough for the last little while, but many people feel as if the worst might be in front of the American economy. Your thoughts on investing in gold are closely tied to your thoughts on the direction of the economy, so make sure that you understand it as well as possible.

Buying now if you feel the dollar’s headed for a slide

With some strong Asian markets starting to emerge and many other global currencies taking control in today’s world, the American dollar is looking weaker than ever. Many investors feel as if the dollar is just doomed to failure. There are signs pointing to large scale inflation in the coming years, even outpacing the current rates of inflation that we are experiencing.

For investors who feel like this is a likely scenario, the best advice is to buy gold as quickly as you can. Getting in when the price is low is a key, because that will increase your profit margins when it comes time to sell that gold way down the road.

Investing ahead of the curve

The markets work in a highly speculative way. If some big piece of news hits the wire and indicates that the economy is going down the tubes, then people are going to pick up on that and start buying gold. This will ultimately push the price higher and it will make it a tougher go for all folks who want to own gold. The best time to invest in gold is ahead of this curve. You have to be savvy to be a successful investor and this is what being savvy is all about.

If you feel strongly that the US dollar will not stand the test of time and that inflation is going to be a big factor, then you must go ahead and make the investments before that comes to fruition.

Holding off in case of a resurgence

There are investors out on the market today who do not share this view that the American economy is going down the drain. These people might feel like the reports are overblown and that people predicting doom do not understand the strength of the American machine. Though this view might be slightly misguided in light of what we know right now about the economy, it is one that’s worth taking into account.

If this happens to be where you stand on the future of the American dollar, then you wouldn’t want to invest in gold products. Common sense tells us that a renewed American strength would push the price of gold lower, so buying right now would be a poor idea in that case.

Some individuals might want to hold off on buying gold for just a little while if they think that the US dollar is in for a small jump that won’t last long. If you think that we are going to see a short, temporary rebuilding of the American economy before falling down again, then you could wait a few years to buy gold, hoping to spot a nice price entry point and take your profits from there. The key, of course, is timing and following your own economic principles in this regard.

Summarizing the situation

Nothing is incredibly cut and dry when it comes to gold investing. Different investors have different viewpoints on where we are headed, so it makes sense that these investors would bump heads on their gold strategy. Those who are looking at the data and seeing a tough time ahead for the dollar know that right now is the best time to load up on more gold assets. They are empowering themselves for the future and planning for the long term.

Those people who think the American economy is bound to recover would not share this approach, and they would want to sell their gold assets right now, as the price will never be higher if the dollar recovers.

Kyle C.’s Thoughts: I guess I am one of “those people”, if I had gold assets I would have sold them, not all of them, but a good chunk. Last time I checked buying something when it is at its most expensive is a bad idea.

Photo: motoyen

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This is a guest post by Clare from MoneyEnergy, a blog that focuses on dividend investing for cashflow and other topics related to financial freedom and personal development.  Clare’s is a graduate student and self-taught DIY investor who loves dividend growth.  Feel free to subscribe to her blog here or catch up with her on Twitter for more information.

[Important caveat: this involves picking individual stocks!  But hopefully by the end of my little explanation you might see that picking individual stocks doesn’t have to involve things like market timing, trading, options, borrowing money or any of those other crazy moves we so often hear are the cause of people losing hard-earned dollars.  Of course, no investment method is ever without any risk, so please take what I have to say as a suggestion only and always do more research of your own.]
So, you paid off your debts and you’re ready to get started in investing?  Or maybe you want to get into the market while you’re still paying off debt, but you don’t know where to start? Maybe you’re even still in highschool and want to put part of your paycheck into something that will eventually give you a greater return than a savings account will.
I think there are two simple ways to get started in investing for beginners.  One way is through index funds.   The other simple way is through the DRIP plan of a company (or more) of your own choosing (DRIP stands for dividend reinvestment plan).  I’m going to talk about the second option, because we hear less about it in the personal finance blog space (I’m assuming because it might seem riskier since it involves individual stocks).  Index funds are popular because of their low fees and the fact that you’re not choosing stocks.  But index funds still involve choice.  You have to choose which index, and even which provider you go with.  Some index funds are even “managed” more than others.  With DRIPs, on the contrary, you only really have one choice to make – the company itself you invest in.  And many have absolutely no fees to deal with at all.

I’m not advocating that DRIPs should be the only part of anyone’s portfolio.  I’m not even giving guidelines here on how many DRIPs would make for good diversification.  I just want to suggest that DRIPs are a good way to get started in stock investing.

What are DRIPs, exactly?

DRIPs are dividend reinvestment plans administered through individual companies themselves.  Pepsi has a DRIP.  Walt Disney has a DRIP.  Home Depot has one, too.  Normally when you buy a stock, you buy it through a broker.  The stock is “yours,” but it’s still basically held under the broker’s name.  The broker pays you the dividends.
But the companies themselves sometimes sell their own stock (not all companies do this – you need to check).  So to invest in a DRIP, sometimes you only need to go to the company’s website, find their guidelines on how to enrol, and then send them a check.  Sometimes it really is that simple.  No fees.  No commissions.

Why Should I Be Interested in DRIPs?

There are many benefits to DRIP investing.  In addition to there being no fees whatsoever on many DRIP plans (not on all of them, though – you need to check), dividends are automatically reinvested back into more shares of the same stock – also for no fee (on some plans).  This is done at a fractional level – so even if you don’t make enough in dividends to buy a whole share of the stock, you will be able to purchase 0.3251 shares of that stock.  All your money goes to work for you.
Most brokers do what they call “dividend reinvestment,” but this is not usually the same thing at all.  Most won’t reinvest fractional amounts.  And whenever you want to buy more of the stock, you’ll still have to pay commission fees.
One of the biggest reasons, of course, is that you can buy more shares of the stock for as little as $25 at a time, if you like.  Don’t have much spare money?  Or just don’t want to put too much towards it yet?  No problem.  DRIPs are perfect for starting small.

Also, there is something about DRIP investing that is just simple to understand in its tangibility.  You are the personal owner of Coca-Cola stock, for example.  You might own the actual paper certificate which says your name on it and the number of shares you have.  It’s an easy way to train and motivate yourself for future savings.  DRIPs are also popular as gifts to children and grandchildren.  It’s easy to call the company’s agent and request a certificate as a gift.
In my opinion — and I’ve been a DRIP investor for almost 10 years now — I think that DRIPs provide the best way to boostrap yourself into the investing world and toward financial freedom.  If you stick with DRIPs that have no fees involved whatsoever, these plans will truly give you the best leverage (in the non-technical sense!) on your money.

How Do I Choose a Company?  Isn’t it Risky?

As for risk, think about it this way.  You will not be putting your whole portfolio into one stock.  You can still diversify between stocks, sectors, and you can combine this strategy with mutual funds and ETFs (I do).  In fact, it would be wise to incorporate a single-stock strategy alongside any fund strategy, in my opinion.  When the market tanks across the board, it will bring your index fund down all the way with it.  Yet if you owned certain pharmaceutical stocks over the last year, you would have seen they didn’t sink nearly as much as the rest of the market.  I think both strategies could work well together.
As for choosing a company – there are literally hundreds which offer DRIPs in some form or another, but keep these points in mind:

  • only companies which pay dividends will be able to offer DRIPs
  • not all companies that do pay dividends will offer DRIPs
  • of the ones that have DRIPs, some of them charge fees (these aren’t the ones I would choose)

Many DRIP plans are run by companies you know and love.  In order to pay a dividend, a company usually has to be at a certain stage of maturity.  Many DRIP companies have been paying dividends for decades uninterrupted.  You should pick a company you understand – something like Kraft Foods, perhaps – or Johnson and Johnson.  You get the point.
Think about a favorite brand name you like, then find out what company produces it.  Go to their website and look for a tab called “Investor Relations.”  That’s where you’ll find out if they have a DRIP plan and what its details are.  You can then request a brochure or just download it yourself if they provide a PDF (which many do now).

So those are the basics.  There’s a bit more to know, but just details.  This is the general bird’s-eye view.

For a more detailed account of how to actually enrol in a DRIP, see my guide to commission-free investing.

Photo: (amagill)

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