The other day I was looking at some physical gold bullion. I was curious about the spot price as related to what is going on in the economy. While that rabbit hole is a bit outside the scope of this blog, it did inspire a question in my mind. Just how important is it to know how you will sell an investment?
How to Buy Precious Metals and Not Be Defrauded
X-rayvsn also deserves some of the credit for this post. A few months ago he posted about how he was nearly defrauded purchasing silver off of Facebook. The message there was that buying such metals from a random person was fraught with risk of being ripped off. After all, if you are not a geologist how exactly do you validate if the gold brick you just received is real?
I similarly have a “gold” coin I was given by my god father when I was 7. In recent years some investigation revealed it was a common scam coin of that period. I have no idea what he paid for it, but it was not a real coin and I am still not sure if it is a gold or gold plated token. An investigation for another day perhaps, but you can read about “California Gold” here.
This all lead me to where you legitamately buy gold without risk. A large company like Apmex. They sell precious metals for a premium. Sometimes that amount can be 30-50 dollars an ounce. All because they are a validated source of precious metal trade. IE you pay this premium to reduce your risk of being ripped off.
How to Sell a Precious Metal Investment
While I did not investigate I am sure there is a significant discount if they were to buy the metal back. After all, if there is enough of a risk of being ripped off that people are willing to pay 30-50 dollars extra per ounce on the purchase, then it stands to reason it is harder to find an educated buyer on the open market on the backend because the other purchases are just as worried. So it stands to reason selling back to Apmex would be easier and they could thus pay less.
Anyway, I write this all not to pick on Apmex, but to instead highlight an often not considered problem that faces many investments. Not all of them are easy to sell when you are done.
There is of course the liquidity aspect of this conundrum that I previously wrote about. But there is also a cost impact.
How to Sell a Real Estate Investment
Anyone that has bought and sold a house has also seen this. There is the realtor cost, the cost of the lawyer, title insurance, etc. Basically high transactional costs to purchase, maintenance, and sale. We as humans tend to focus on the transactional costs upfront but we completely forget about those on the backend. This can be made even worse if you bought a home in a place where ultimately no one wants to buy later on. Say you bought land that later became landlocked. Then it might not just be transactional costs, it might be a high hurdle to even find a buyer.
My Own Failure to Consider How To Sell An Investment
Some of my own investments have suffered due to a failure to consider how to sell them. When I was a kid I “invested” heavily in comics and sports cards. The quotes is because I enjoyed reading such collectibles as well, but I still had this picture in my mind that some day they would be worth something. Are they worth something today? Based on some google searches some of them are worth a moderate amount.
But I have neither the time nor the resources to sell them. This is especially true with the modern era concept of grading a card. Thus the idea of them as an investment didn’t really work. (Note before someone calls me out saying this is easy to do, the reality is they are worth something if I sorted through the thousands I have. But their worth is probably less then the value of my time to take such action. So they sit in my basement.)
The Primary US Stock Market is Easy to Sell
One of the great things about stock market investing is that these transactional costs are low or in some cases 0. In my experience this is the exception in the investing world. So consider this a friendly reminder, always check about how difficult it will be to sell your investments. What are the barriers and costs to the sale.
How Would You Sell Gold At the End of Civilization?
Before we end, back to picking on our gold example. I’ve been fond of saying I don’t invest in gold because I don’t see the point. Over the moderate term gold does not track inflation but rather fluctuates wildly. But even if I thought it would serve as a good black swan protection, the question is who would you sell it too in the case of a true black swan.
In the hypothetical world where the economy collapsed and you wanted to use gold, or another analogy Bitcoin, to get by, who would you sell too. How would you find them to sell? How would they validate you weren’t selling them fools gold or find a computer with a network to take your bitcoin? Anyway, something to contemplate as a bigger question for preppers, I guess.
For now, I hope this slightly rambling post reminded you to always check how much it will cost you and how you will sell an investment before you purchase it.