Long-term Investments

Assets to be held over a long period of time. How long is "long" depends on an individual investor's perspective. For day-traders, long-term could mean a week (as they usually hold a position for a few hours or so).

Although some of our tools might use a different definition, at Sunshine Profits, we assume that long term refers to a period of at least 6 months.

A little bit more on long-term investments

 

Even though there is no universal agreement on how long the “long-term” investments are, there are some intuitive indicators of whether the investment can be considered a long-term one. Particularly, if the investment is made with fundamental factors in mind and not purely as a short-lived speculative trade, it can fall into the “long-term” category.

 

The long term is the period over which prices tend to follow indications of fundamental factors (“tend to” surely does not equal “always” here). Conversely, the short term is a period in which prices do not need to behave as suggested by fundamentals. For gold and silver this would mean that while prices tend to follow fundamentals in the long term, strong deviations from the general direction of price changes suggested by fundamentals (a.k.a. the uptrend) can be seen quite frequently in the short term.

If you work on the assumption that precious metals are in a continual general uptrend, long-term investments can be perceived by you as less risky because of the fact that (if your assumption is correct) the longer the investment period, the lower the chance that gold and silver will trade low. In simple words, if it is correct to assume that gold is in a general uptrend, then it is rather unlikely (but still possible!) that it will depreciate over the next couple of years. If we consider a horizon of one week, however, the possibility of depreciating over that period does not seem that unlikely any more.

The theoretical distinction between long-term investments and short-term trades and the associated uncertainty over long time periods have some operational implications when creating a gold and silver portfolio. One of the most important is the way long-term investors gain exposure to the precious metals market in the long term. Because of the fact that they are inclined to open a position and maintain it for a long period, they usually do not use derivatives, for instance because of the time decay of options.

The use of ETFs or ETNs over the long term may not be suitable either since they are either insufficiently (ETFs) or not at all (ETNs) backed in real gold or silver. The lack of proper backing in physical precious metals is important because the funds can quite simply go bankrupt in which case the investors may never see their principal investment (let alone the gains).

Because of the factors mentioned above, it might be advisable to choose physical gold and silver as the primary long-term investment vehicle. For long-term investments, the main disadvantages of holding physical bullion, like low liquidity, high storage and transportation costs, are offset by the fact that positions are maintained over a longer period of time.

Additionally, geographically diversified physical holdings offer one of the best available insurances against legal risk and counterparty bankruptcies. The former is the case because if gold is confiscated in one jurisdiction, it might not be in others. The latter is the case since your holdings are tangible and not only a promise of someone else to pay you money based on the price of gold and silver. One specific risk associated with physical gold and silver is that of theft as the vaults of your custodian can never be 100% safe. For more information on how to buy gold and silver depending on the time horizon of your investment, please check our How to Buy Gold guide.