Starter Guide to Investing in Precious Metals in Your Portfolio
Precious metals are a diversification tool for your investment portfolio. Many assume that gold is the only physical metal that counts as this commodity. However, there are other precious metals, too, such as silver, platinum and palladium.
These precious metals are each unique in their way and have certain benefits and risks. But overall, in times of uncertainty, these valuable metals can be a great way to balance out your portfolio, get diversification benefits and secure your investment fund.
Individuals can invest in these metals to balance out their portfolio and not have only traditional investments such as stocks, bonds and mutual funds. Investing in precious metals can help you achieve your retirement goals and fulfil your investment objectives to live your golden years in utmost peace and comfort.
This article has discussed the different precious metals you can invest in and why investing in them is crucial and can be fruitful for your retirement nest egg. In addition, we also discuss what factors you should consider before considering a precious metal portfolio.
- Types of Precious Metals
- Importance of Precious Metals
Different Precious Metals to Invest In
These shiny fascinating metals are not just for luxury. Rather, they can help you greatly in times of crisis and can generate great investment income. The four main valuable metals you can invest in and their features are as follows:
Gold is the most common precious metal. It holds a lot of significance and has a deep history. For many years, gold has been considered a valuable precious metal. This physical metal has remained stable despite economic uncertainty and market downturns.
Gold has many diverse applications. It is commonly used to make jewelry and can be seen adorned by many brides and attendees at weddings and other auspicious occasions. Moreover, it also has different industrial demands. It is used in the aerospace industry due to the property of it being a good conductor. This yellow metal is also used in the medicine and dentistry industry. Apart from that, it is used for electronic items too.
In ancient times, gold was used as a form of currency. Hence, it also holds sentimental value and incredible history. Gold value is identified by the market situation the entire week and for every hour. The gold price is not affected dominantly by demand and supply laws. When gold accumulators want to sell gold, the price generally drops, and when they feel like buying as they buy in large quantities to hoard gold, the supply of gold is used up, and the price rises.
Gold has proved to retain its value in times of crisis; hence when banks' dollar money is thought of as unstable, gold comes to the rescue.Moreover, when inflation occurs, this yellow metal tends to maintain its value and at times, the value increases while assets such as real estate, bonds, mutual funds and equity tend to lose their value and their prices fall.
Additionally, for many years when any war or political instability occurs, people move towards investing in gold as they know gold won't be highly affected.
You can get exposure to gold in many ways, such as gold coins, gold bars, and ingots, and if you don't want to invest directly in physical gold, you can also invest in gold ETFs. Additionally, you can start a gold IRA rollover too. If you're new to investing in precious metals, learning how to start a gold IRA can provide a solid foundation for your financial future. You can also buy stocks or shares in a gold mining company to invest in gold indirectly.
However, there are some risks with investing in gold, too. As gold is a precious commodity, there is a security concern, so you must properly manage the storage space. Furthermore, it is important to invest in the right kind of gold and not fall into a scam by dealers who sell gold with less purity.
Due to its tendency to retain value and maintain steady prices even during economic downturns or stock market crashes, silver is a valuable asset. It offers protection from different rates of inflation rather than being negatively affected by the economic effects. Keeping silver in an IRA is a wise decision because you can save a lot of money.
Silver is more volatile than gold, and price fluctuations can be observed in the silver market.
Silver was previously used in the photography industry; however, picture taking is now dominantly through your mobiles and digital cameras. In addition, silver is used for industrial applications and electrical equipment such as bearings. Silver is also a great conductor for conductor applications, batteries and circuitry like gold.
In addition to these applications, silver is used as jewelry and is a common metal for engagement and wedding rings. You can invest in silver through silver coins, exchange-traded funds and silver bars apart from jewelry. You can also invest in silver mining stocks and futures. Through silver ETF, you don't need to invest in the actual physical commodity; rather, you can invest indirectly.
Similar to gold, silver also holds security and storage concerns. Moreover, as silver is traded on national and international markets, it can be subject to price fluctuations.
Platinum is one of the most valuable precious metals. These white metals are traded on commodities markets throughout the globe.
Due to its rarity and scarcity, platinum tends to be available at higher prices than gold, making this white metal so exquisite. The main supply of platinum is from South Africa, where it is mined annually, but the amount produced is much less, making it a rare metal.
Apart from being rare, platinum is also an industrial metal. It is used in the automobile industry for catalytic converters for diesel vehicles to reduce exhaust emissions. In addition, platinum can also be used to produce hydrogen fuel cells and treat cancer. Like silver and gold, this metal is also used for jewelry.
The platinum price is majorly dependent on the automotive industry. As the emission legislation becomes stricter, the platinum demand increases, raising its prices. However, substitutes for catalytic converters such as palladium can reduce the price of platinum.
Platinum is the most volatile precious metal, and despite being pricier than gold, it has experienced a dip in its price in recent years.You can invest in platinum as a physical asset through platinum coins or bars. In addition, you can also invest in platinum by buying shares in platinum mining firms or through futures contracts or precious metals ETFs.
However, due to environmental concerns, electric cars are gaining tract. If this continues, diesel cars might not be used as much, reducing the need for catalytic converters and diminishing the demand for platinum.
Overall, platinum can be a great alternative investment for your retirement savings.
Palladium is not a very well-known precious metal. However, it is still a significant precious metal.
Palladium has a great variety of industrial uses. It is used in different manufacturing processes for industrial and electronic items. Moreover, palladium is also used in the medicinal industry and for dentistry. Palladium, similar to the other precious metals discussed, is also used for jewelry. However, it is not common to be used as a jewelry item.
Like platinum, palladium is also used for catalytic converters and is quite durable.
In an economic crisis, palladium acts as a monetary reserve. Even though palladium is not as well-known as gold, it still provides an opportunity for investments that produce profitable returns at the same price as gold. Palladium is an inflation hedge that holds out well during financial market crashes.
The majority of palladium is produced by the US, Canada and Russia. South Africa also substantially facilitates palladium production. Due to the recent conflict between Ukraine and Russia, the commodity markets have had to suffer. And the domestic production of palladium has also been affected.
You can invest directly in palladium through physical assets like palladium bullion, bars, or palladium coins. You can also gain exposure to palladium by investing in a business focused on palladium. You can do this by investing in companies used to mine out palladium. Moreover, you can invest in palladium through palladium ETFs.
Importance of Having Precious Metals in your Portfolio
Precious metals can be extremely beneficial if they become a part of your investment portfolio. We have discussed some major benefits these investments have.
Diversification lowers risk. Through the process of diversification in an investment, you divide your funds into a variety of asset classes. These asset classes can include stocks, mutual funds, bonds, ETFs and even precious metals. Hence, if one particular commodity does not fare well, you still have another to depend on.
Investing solely in one type of asset class can be highly risky because one unstable occurrence such as high stock market volatility can make you lose all your funds in an instant.
Therefore, precious metals act as portfolio diversifiers, save you from this high-risk act and help you have various investments. You can successfully drive through the ups and downs of the unpredictable market. Diversification allows you to boost your savings and seamlessly reach your investment goal. Your portfolio's long-term performance also improves, and your investment returns are smoother and have more potential to grow. Before buying precious metals, you should know the various bullion mints you can potentially choose from. One way to optimize your investments is by diversifying precious metal IRA holdings in your portfolio.
Hedge Against Inflation
Precious metals provide a hedge against inflation. This means that when inflation rises and the purchasing power of the dollar is reduced, the value of precious metals rises, and if you have invested in these metals, you do not have to fret about their value being lost.
Precious metals are an inflation hedge because these commodities have intrinsic value, and their demand increases with inflation.
Precious metals can be crucial in your portfolio during unstable times because they retain value despite market volatility.
Reduced Credit Risk
Precious metals can be subject to risk due to fluctuations in the market. However, these commodities are more robust than other traditional assets.
They correlate less with other asset classes such as stocks and bonds; therefore, even if you invest as little as 3-5% of your portfolio in precious metals, you will be subjected to less risk and volatility.
Choosing How Much to Invest in Precious Metals
As appealing as it sounds, you must strategize and align your investment goals before investing in precious metals. You need to assess how much risk you are ready to take and invest in precious metals accordingly for your portfolio.
You should also see your financial capability and invest only if it doesn't burden you. To do this, you should separate your spending and see how much you can allocate for the investment in precious metals.
Moreover, it would be best if you also decided how much of your portfolio should be assigned to precious metals. Generally, 10-15% is enough for the share of precious metals. If your asset allocation consists of too many precious metals, you might miss the opportunity to get a higher return rate from other types of investment.
At the same time, investing too little in precious metals can make you more prone to the risks caused by investment in other paper assets during instability.
You should consult a financial advisor to guide you better for the investment decisions that will benefit you the most.
Precious metals are a clever and effective way to implement a diversified strategy for your investment portfolio. With them, you can safeguard your funds from any instability, be it market crashes or political crises. You won't have to worry about your funds disappearing because of the decline in the stock exchange market because you will have precious metals to create the balance.
However, despite the many benefits these popular metals offer, you need to properly know your risk tolerance and financial capability before investing in precious metals; otherwise, they might not be as fruitful.
Precious Metals Resources
- Most Popular Gold Coins in the World
- Which Country Produces the Highest Quality Gold?
- Best Places to Buy Gold For Investment
- Which Country Has the Most Gold?
- Reporting Precious Metals Like Gold With Government & IRS
Was this resource helpful?
Disclaimer: Content on this website is not intended to be used as financial advice. It is not to be used as a recommendation to buy, sell, or trade an asset that requires a licensed broker. Consult a financial advisor.