Physical precious metals have been famous for thousands of years. Even though they were discovered by ancient civilizations, they’re still excellent investment options for those who want to prepare for future uncertainties.
Gold, silver, and other precious metals might be a great addition to your portfolio. Due to the stability that these assets tend to offer, there’s a high possibility that you can count on them even if the rest of your assets decline in value.
There are many ways to start your precious metals investing journey, so if you want to do it right, you must do proper research. For this exact reason, I started this website to help people understand how they can be added to a retirement portfolio.
On this page, I gathered the most essential information you should know about common physical metals and how you can use them to improve your portfolio.
First – are precious metals a good investment? If you are asking me, there is no better signal to point to than the price history. I urge you to read that page for more in depth information.
What Are the Most Common Precious Metals Investments You Can Make?
One of the best methods to manage your portfolio efficiently is to consider asset diversification. When done correctly, you can decrease risks and increase the rate of return from certain items.
If you only have one asset in your portfolio, you risk losing your entire investment if its price declines. On the contrary, if you have several financial products in your portfolio, you could still save part of your money in times of economic turmoil.
In many cases, allocating even a small part of your portfolio to a precious metal can benefit you in the long run, but which products should you choose?
Let’s go over the most popular precious metals you can invest in so that you have a better idea of what to expect:
Gold stays #1 among the best precious metals to invest in. The physical metal is known for being durable and malleable. It can also conduct heat and electricity.
While most people know gold as a form of currency and as jewelry, it also has other applications, including in electronics and industrial products. Gold is often an excellent option for precious metals miners.
Contrary to other assets on the market, gold’s value isn’t highly affected by supply and demand, making it more attractive to both buyers and sellers.
Here are other reasons why gold is considered one of the top precious metals in history:
It’s known for maintaining its value even when the rates of return in real estate or equity markets are negative.
It’s considered a safe store of value when there’s political or financial instability.
It can be made “portable” and stored until it’s needed, making it a great option during political crises or even wars.
Even though gold is the most popular precious metal to date (and it’s likely to stay that way), it’s not as accessible to all investors as other assets.
Silver is an industrial metal that’s commonly used in technology. You can find silver in cars, solar-panel cells, and even in the device you’re using to read this article! This precious metal has also been used in the photography industry. All of this is because of its electrical properties.
Besides these applications, silver is also commonly used for jewelry, silverware, bars, and coins, making it a great store of value. Silver coins, for example, are a more accessible option than other gold products.
However, keep in mind that since silver has a “dual role” as a store of value and industrial metal, it’s more volatile than gold. Depending on the case, you can expect the volatility of this precious metal to be up to three times greater than gold’s.
If you’re planning to invest in precious metals, and silver seems like an attractive option, keep in mind that it’s often more sensitive to economic changes, which can be both a good and bad thing.
Platinum is part of a group called the “Platinum-Group Metals.” It includes:
Unlike the other rare metals mentioned here, platinum is mostly used in the auto industry, specifically in the manufacturing of catalytic converters. These help reduce emissions from your vehicle’s exhaust. You can also expect platinum to get used in the refining, petroleum, and computer industries.
Considering the precious metal’s rarity, you can expect higher prices for it compared to gold and silver. It may not have a high investment value like these assets.
Palladium is also part of the PGM, and it’s used in many industries, including:
This precious metal is highly valuable due to its rarity, although it’s not as popular as the other precious metals we mentioned here.
As you can see, there are many precious metals you can take advantage of today, but if you want the “safest” solution, gold may be the best way to go. However, if it’s too expensive for you, you can still go for other assets like silver, platinum, or palladium.
How to Start Investing in Your Precious Metals Portfolio
Investing in precious metals isn’t as complicated as it seems. You’ll have an easy time figuring out what investment will suit your needs the best, as long as you take your time to do research and invest based on your budget and financial goals.
Let’s look at the most popular ways to start your precious metals investing journey:
Some people love having physical precious metals coins and bars stored just in case. However, I’d only recommend this option if you have a safe place to store them, such as a personal safe or deposit box.
If you’re someone preparing for the worst, it may be a good idea to hold physical precious metals somewhere safe. Otherwise, you may consider some of the other methods I’ll mention below.
Precious Metals Stocks and Mutual Funds
Investing in mining stocks can be a good option to expand and diversify your portfolio. Here, miners’ shares are leveraged to price movements in the assets.
If you’re going for stocks and mutual funds, however, make sure to do proper research so that you don’t make any poor investing decisions.
Commodity Exchange-Traded Funds
ETFs are often considered one of the most convenient ways to invest in precious metals. Here, you won’t buy the physical metal itself but rather an “investment security.”
When you invest in an EFT, you’re getting an investment fund that holds the precious metals. The value of your ETF is linked to the price of the metal of your choosing. If you want to buy or sell your shares, you can do it on an exchange website as if you were trading stocks.
In other words, owning an ETF share doesn’t mean you hold a precious metal but rather a portion of the fund that represents it.
Futures are exchange-traded contracts involving an agreement between a buyer and seller. The buyer, in this case, agrees to take a specific amount of the precious metal at a set price and future delivery date.
Gold options can have either physical metals or futures on them. The agreement facilitates a future transaction that lists a preset price and an expiration date.
This option is great for those who feel comfortable making a bet on certain metals, as you can get greater potential profits from your contract. However, keep in mind that you can also lose profits.
As the name implies, certificates allow you to “own” precious metals without dealing with the physical asset itself. Here, you’ll get a paper that certifies you’re the owner of said precious metal, making it a great option if you don’t want to deal with transportation or storage.
The main downside to certificates is that they’re just paper, so they probably won’t work if you find yourself in a crisis and want to exchange them for another store of value.
Which Option Should You Choose?
It mostly depends on your current experience as an investor and what your goals are. Physical gold ownership, for example, is fantastic if you can deal with transportation and storage and want to prepare for any crisis in the future.
However, if that process seems too overwhelming, you can also get one of the precious metals-based investment products we mentioned and still enjoy the benefits of these assets. You may have to do more research to understand how these investments work, though. Otherwise, you risk making a costly mistake.
Why Are Precious Metals a Reasonable Investment?
Are physical gold and silver a good investment? Most of the time, yes.
Precious metals, overall, can’t be inflated and have intrinsic value, making them great insurance against any crisis that may come around. You should consider investing in precious metals if you want to get greater inflationary protection.
Even allocating a small portion of your portfolio to precious metals can help you reduce volatility risks and increase your potential returns in the future. If you do research and make the right call with your investments, you could get several benefits from these assets.
Keep reading to learn more about the benefits of investing in precious metals!
Why Buy Precious Metals?
Now that you know the basics of precious metals, why buy them?
There are plenty of reasons why you can benefit from these rare assets, however, the one that most people mention is their safety.
As mentioned before, precious metals are known as a store of value. Not only do they provide a hedge against inflation, but they could also offer potentially higher returns in the future.
Even if other markets (like the stock market) crash, you can expect the value of precious metals to increase or stay stable. If you’re saving up for retirement, then precious metals are a great way to protect your money.
In most cases, the price of your precious metals will be higher than when you bought them, so if you’re planning on long-term investment projects, this is a good alternative to other options.
Another reason why investing in precious metals is a fantastic decision to make is that they’re not correlated with other asset classes. Even if other markets crash, a portion of your portfolio will stay safe.
Precious metals are also private assets that aren’t subject to direct regulation. If you want to keep your investment life private, rest assured you’ll be able to make transactions with precious metals without any issues.
Many investors love precious metals because of their tangible nature. Unless you buy precious metals-based investment products, you can hold your assets, take them with you, and store them anywhere you want.
If you’re investing in a precious metals IRA, though, you are subject to certain regulations and guidelines set by the IRS, so you won’t have as much liberty as if you bought the assets by yourself.
To summarize, the benefits of buying precious metals include:
Hedge against inflation
Ease to convert the metals to cash
Reasons Why Not to Buy Precious Metals – Potential Risks
Unfortunately, investing in precious metals comes with certain disadvantages and risks that you can’t ignore.
If you buy physical metals, for example, you’re exposing yourself to potential theft depending on where you store them. On the other hand, if you want to store and insure your metals with a precious metals companies, or a vault, you will have to pay more money.
The IRS taxes precious metals as collectibles, so if you sell them at a profit, you may be looking at a 28% taxation rate. It’s higher than the rates for capital gains. You can avoid this by investing in products like ETFs, mutual funds, and futures.
Precious metals don’t pay dividends or interest like stocks and bonds, meaning you won’t get that potential profit in the short term. A common misconception about precious metals is that people think they’re meant to produce income. Gold and other metals are a store of value, meaning they protect your portfolio against any financial issues. You could, however, sell your metals in the future for a profit, but if earning profits is your goal, then this may not be a great investment option.
The rise of cryptocurrencies could affect the demand for precious metals, as they can also be a hedge against inflation and a store of value. However, cryptos, overall, are much more volatile than precious metals, so you can expect the value of the latter to remain stable even if the popularity of the former keeps rising.
Even though there are a few reasons why investing in precious metals may not be for you, the benefits easily overpower the disadvantages.
What I recommend is not to look at precious metals as a way to earn money but rather as a method to save money for the future with fewer risks. You can earn money by investing in precious metals, but that’s not the main goal of these assets.
On the other hand, if you’re planning on investing in these assets, you must do research and choose the most viable option. Owning the physical metal itself isn’t viable for everyone and comes with many risks, so those who want to go for the safest option may consider other investment products.
When to Buy Precious Metals
Knowing when to start your precious metal investments can be tricky, as the answer may depend on each person’s case.
As a rule of thumb, you should consider starting your investment journey if you expect rising inflation rates or any event that could affect the economy. There are many financial experts online that help predict when the general economy could experience a crisis, so you can take that as a reference of when to move.
You can expect precious metal prices to get to their peak in the last months of the year and cool down through spring and summer. Typically, the best time of the year to buy gold or other metals may be January, March, April, mid-June, and early July.
Make sure to research the precious metals market before buying anything. The more you pay attention to recent price trends or fluctuations, the better chance you’ll have at spotting a great buying price. Then, once you’re ready to sell, you can check when the metals are in the highest demand and make your decision based on that.
Bottom Line - Are Precious Metals a Good Investment Now?
Should you buy physical gold and silver? If you want to diversify and protect your portfolio, I’d say go for it.
Precious metals are an excellent investment you can make now, and they will probably still be for many years to come. Not many assets offer the stability that precious metals like gold do, so they’re always an attractive option for both buyers and sellers.
If you’re someone who wants to protect their savings or is preparing for retirement, you can invest in precious metals and protect a portion of your portfolio. As I mentioned earlier, if you want to prioritize profits in the short term, I suggest you consider other financial investments like stocks and bonds instead.
I don’t recommend you allocate your entire portfolio to precious metals, though, as that will also hurt your savings in the long run. Diversification is key to ensuring a healthy and stable financial portfolio, so if you don’t know where to start, make sure to read as much as you can and seek help from professionals to know which options are more appropriate for your goals.
Today’s economy is known for being volatile, so there’s no better time to consider precious metals for your portfolio.