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Would-be investors are finding themselves in risky times.
After crashing earlier this year due to COVID-19, markets showed s strong rebound in the short term. However, some experts express concerns that the economic solutions put forward may be band-aids on bullet holes, and another crash may be imminent.
In turbulent times, many investors seek to secure the holdings by investing in precious metals like gold and silver. After all, these materials have been highly valued by countless civilizations over many thousands of years. Maybe current stock prices won’t last, but surely the value of silver and gold is a constant?
The simple answer is yes. But the long answer is more complicated. More goes into making successful investments than just deciding to buy precious metals.
What is the Purpose of Keeping Precious Metals in Your Portfolio?
The first question that you’ll want to ask is what the purpose of an investment is. For most investors in silver and gold, the answer has something to do with diversification.
The point idea is to either increase the return you can expect from your portfolio or decrease the level of risk required to reach a certain return. And keeping some of a portfolio in precious metals is a popular way to do this.
Like we alluded to, silver and gold tend to retain much of the value independent of factors like political market unrest. If anything, their value tends to increase during these times as investors lose confidence in political and economic institutions.
Instead of currencies or stocks, which derive their values from faith in governments or corporations, the value of precious metals is more inherent. They are scarce and their unique properties mean that they will always be valued for their industrial uses.
This makes them attractive as a means to protect your wealth. This is why a common thought is that any portfolio should hold at least some of its value in them.
What Proportion of a Portfolio Should be Gold and Silver?
The value of silver and gold is self-evident. What is not is how much you should invest in them. And there are a number of differing views on this.
One of the main drawbacks of precious metals is that, at the end of the day, they’re just inert chunks of metal. They can’t do anything to generate revenue of their own.
For this reason, it’s usually inadvisable to put too many of your eggs in this particular basket. While there is a certain set of investors who distrust the system so much that they put almost all of their investments into metals, they’re definite outliers. Most investors take a much more moderate approach.
The general consensus is that an investment of 5-10% of your total portfolio’s worth is probably the optimal amount. This creates a respectable bulwark against market volatility, helping your overall portfolio to retain value over time. And it frees up the majority of resources to go into venues with more potential for growth.
How to Buy Precious Metals
We know why silver and gold are attractive investment choices, and about the proportion of a portfolio they should make up. Now, all we have to do is actually make the purchase.
The oldest method is to just buy physical gold and silver coins or bars.
The appeal of doing it this way is simplicity. You buy some physical bullion and keep it in a safe place. Though as tends to be the way, it can quickly get complicated.
If you have a sizable hoard of bullion, where can you store it that you know that it will be safe?
Some experts will recommend that keeping a modest amount of bullion and hard cash in your personal residence is a good idea.
In 2017, Hurrican Maria struck Purto Rico and left the region in the dark. No electricity meant no card readers, and the economy shifted to cash-based overnight. And to prevent runs, many banks put strict limits on the amount each patron could withdraw per day.
Between political unrest, economic instability, and the increasing frequency of extreme weather events, it makes sense to keep some physical commodities available.
But past a certain point, it becomes unsafe to store silver and gold at home. Large amounts need storage off-site with professional security. And that comes at an expense.
Generally, the value of metals tends to rise faster than the cost of securing them, but it means that going this route will have you starting off at a loss.
Gold and Silver ETFs
For getting around the hassle of physically storing precious metals yourself, exchange-traded funds (ETFs) can be an attractive option.
For the unfamiliar, and ETF is an arrangement where the provider procures the assets, organizes a fund to track their performance, and then sells shares of the fund to investors.
It’s probably the easiest way to get into gold and silver investing as the fund does all of the actual work managing it.
The main downside is the expense. Most gold and silver ETFs are rather pricey to buy into.
Also, most of them are not redeemable for physical gold and silver. This means they don’t have the appeal of physical bouillion as an emergency commodity. If a sudden emergency should strike, there’s no way for you to actually get your hand on the gold and silver that could help you.
Building Your Wealth in Silver and Gold
Though it isn’t a foolproof investment, it’s prudent for everyone with the means to buy precious metals. At least to the extent that it lets them reinforce their portfolio and give them a fallback for a rainy day.
It’s just important to remember not to put the entirety of your portfolio into them. Otherwise, you’ll end up cheating yourself out of more promising opportunities by having your assets tied up in metals.
For more tips on how to build your wealth while securing your investments for the future, be to sure to keep up with all the latest from MineBook.