Precious metals hold high tangible value, add diversification to a portfolio & offer excellent financial hedging options.
Many people safeguard their future by investing in stocks. Among the tens of thousands of viable options to invest in, it becomes convoluted & overwhelming.
However, precious metals (PM) like gold, silver, platinum can add diversification to a balanced portfolio besides strong equities like real estate, bonds, stocks, etc.
Although you won’t get the guarantee to have a constant return from these PMs, you will have excellent financial hedging options in times of hyperinflation & other financial crises.
How To Make Investments in Precious Metals
Precious metals are the rarest ones found in nature. In modern days, to invest in the PM, you can follow three general ways discussed below
1. Invest in Physical Precious Metals
Physical PM means you have the authority to physically possess the gold, silver, platinum. You can keep them in many forms like bullion bars, coins, jewelry, etc.
They all serve the same purpose- you can trade by keeping them in your physical possession. This comes in handy when you want to open a special retirement account. You can try adding silver in an ira. This will also allow you to add other precious metals to the account.
As you have access to the PM & hold these physically, you don’t need to pay any management fees. In times of emergency & financial crisis, you can use it right away. The best part is, these metals can be traded worldwide.
The only downside of investing in such metals is that you need to ensure high security.
2. Invest in Paper PM/ETF
The exchange-traded fund (ETF) is alternatively known as paper precious metals. Here, you don’t possess the physical metal but have the share of owning such.
These metals are stored in the secured volts & you buy the share for holding such metals. For this paper PMs, you need to make an annual payment of the expense ratio.
As you don’t keep them physically, security isn’t a concern. These are also highly liquid & you can complete transactions quickly.
So, during a financial crisis, you may not get expected favor from the ETFs as you would have from the physical PM. The expense ratios of these PMs can cost to a great extent, eating up your profits.
3. Invest in Precious Metal Mining Stocks
These are stocks associated with the mining authorities. Historically, they have mismanagement issues & frequently underperforms the actual metal value.
Although some may have profited from these stocks, they are still wild cards. If you are wondering about a holding-selling type of stock, these stocks will undoubtedly disappoint you.
Advantages of Investing in Precious Metals
After discussing the ways of investment in these precious metals, let’s talk about the benefits you can enjoy by investing in them.
1. Adds Diversity to Your Portfolio
According to the specialists and experts, a well-rounded portfolio of stocks doesn’t contain only strong equities. That said, investing in alternative assets like precious metals counts for diversification.
Although experts suggest that you should have (5-10) % of these assets for your portfolio, you can add up to 25% in your portfolio.
You may ask why you need diversification? The answer is, these assets safeguards your financial breakdown during a sudden financial crisis or hyperinflation. Also, the equity index of these assets can back you up & minimize the loss to a great extent.
2. Possess Solid Asset
The crucial aspect of owning precious metals is their tangibility. It encourages many people to consider buying hard assets.
In terms of a financial breakdown or a current crisis, it’s a prerequisite that you have your stronghold in your hand & owning PM physically serves the cause.
3. Back-Up for Inflation
As a wise investor, you need to prepare for any financial crisis or hyperinflation. During such times, money becomes worthless.
But over the long haul, gold, silver, or platinum can keep pace with the high inflation rate. Besides, you have the buying power intact by possessing these precious metals.
The Venezuelan inflation crisis is the perfect example where the inflation rate was 1,000,000%.
4. Worldwide Popularity
Another vital aspect of PM is that it is accepted worldwide, regardless of the country or region you live in. Unlike other local stocks or even cryptocurrencies like Bitcoin, you have the best tangible benefits with precious metals at your disposal.
Again, you have no concern about credit risk as no government or entity backs these metals. Hence, during currency devaluation, you have a solid chance of making a profit.
5. An Overall Worthy Asset
These precious metals have a higher return rate over a longer time. Hence, during hyperinflation, investors quickly flock to these assets as the price of these metals surges while other investments fall. It makes financing easier even in pandemics like COVID-19.
Investors also add these assets to add diversification to their portfolios.
Disadvantages of Investing in PM
Don’t get over-hyped yet. Precious metals have some flaws too. The downsides are-
1. Volatile Nature
Precious metals are volatile & often depend on investors’ sentiments. Regardless of much research, nobody has provided conclusive reasons behind such random price swings.
Since the price curve does not show any consistency, sometimes, precious metals see unexpected slump, while other equities like real estates, bonds, stocks surge significantly.
2. Not A Constant Income Source
Precious metals rely on price appreciation. Meaning, if the price goes up over a certain period, only then you can enjoy some fancy returns. So, if you are looking for an income-generating asset, don’t go for these. Unlike typical stocks & bonds; these don’t pay dividends.
Moreover, ETFs are only tangible if you are looking far beyond. For short time investors, this is not a viable option.
Are Precious Metals A Good Bet?
Finally, we have come to the most challenging part. We can’t tell you for sure what to do. Instead, let’s put some facts & then you can decide for yourself.
Precious metals rely mainly upon price appreciation. You won’t get a handsome return from these like the other equities.
However, it surely helps a financial crisis like hyperinflation or currency devaluation while the value of other assets falls. For an overall decent portfolio, these shares are always advisable as they add diversification.
Whether or not you should invest in precious metals is entirely up to your preference. But before deciding, make sure you understand the risks, rewards & your goal.