Precious metals such as gold, silver and platinum have long been recognized as valuable. Learn how to invest in these commodities. Personally, I think it's appropriate to put 5% of a portfolio in precious metals, and perhaps up to 10% in some cases. If you invest too much, you risk missing out on the better growth that other asset classes have historically offered.
However, not having an assignment exposes you to certain risks that stocks and bonds can't always offset. While they can come with a certain degree of security, there is always some risk when investing in precious metals. However, investing in physical metal can be very attractive to some investors looking to diversify their investment portfolios. The value of investments in precious metals may fluctuate and may appreciate or decrease, depending on market conditions.
Precious metals such as gold and silver are physically scarce, chemically unique and useful for industrial applications. If, on the other hand, you invest in an ETF that contains precious metals, it will have an expense ratio that covers the security and all the administrative costs of managing the fund and its metal reserve. Investing in precious metal ETFs can provide much-needed cash flows in times of recession and market slowdown. In addition, gold and silver are strategic long-term holds that can preserve your assets if your company has to close its doors.
Silver is used in small quantities in almost every electronic device that exists and in many other industrial applications, such as glass and solar panels, and in practice it is more of a functional metal than gold. We have asked several of the leading investment experts for advice and it seems that the value of investing in commodities varies depending on the exact nature and purpose of your investment, as well as your experience in the market and the rest of your portfolio. Gold and silver aren't the only commodities that consumers can invest in any shape or form. Perhaps their interest in investing in commodities is due to some kind of innate patriotism, which dates back to the California gold rush of the mid-19th century, or perhaps we have simply been too carried away by popular reality programs such as “Gold Rush” by Discovery and “Storage Wars” by A&E.
An asset allocation that is too large (15% or more) dedicated to precious metals could result in the loss of the higher returns offered by other asset classes. Regardless of their level of sophistication, I've found that the best path to true diversification is to invest in a variety of assets, including alternative assets other than traditional stocks or bonds. The biggest industrial use of palladium is in catalytic converters because the metal serves as a great catalyst that accelerates chemical reactions. At the end of the day, the more specific your investment is (buying a particular metal rather than investing in a precious metals ETF, for example), the more important it will be to be an expert in the area.
Investing in gold and silver is useful because precious metals are a different asset class from stocks and bonds, and are partially uncorrelated and have their own unique risks and opportunities.
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