“The key to having great diversification in your portfolio lies in finding assets that are not closely correlated. Could gold and other precious metals be one such non-correlated investment.” Eric Coons
As a financial advisor, I am a strong proponent of portfolio diversity. No matter what your risk tolerance or long-term money goals may be, diversification is a key component of successful investing. Diversification is not something that you do once and forget, either. As I tell my clients, you must rigorously and regularly monitor your investment matrix to determine if the asset mix is sufficiently diverse and meshes with your current risk tolerance and goals.
Once you have achieved the type of portfolio balance you and your retirement income specialist have determined best fits your needs, you may decide you’d like to include some alternative investments, such as real estate, cryptocurrency, or precious metals.
Our current iffy economic situation has many people asking if investing in gold and silver is a good way to offset inflation and achieve diversification.
My short answer is… it depends.
Gold and silver have been respected for millennia for their beauty and utility. The first pure gold coins appeared in the ancient country of Lydia around 750 BC. When other types of currencies fail, as they always do, gold, silver, and other precious metals, human beings return to precious metals.
The precious metals market is, and will probably continue to be volatile. However, if you are someone who plans for the long-term, it might make sense to include some precious metals in your portfolio. Some reasons to consider investing in precious metals include:
- Precious metals have been desirable for thousands of years. Throughout modern history, gold and silver have been viewed as unique and desirable commodities with many industrial and artistic uses.
- Precious metals can offer some inflationary protection. You can’t simply “print” more gold and silver or create it with a keystroke. Gold and silver have unique attributes as non-correlated, scarce, and liquid assets.
- Gold and silver are real money. Unlike printed (fiat) currency, gold and silver are globally accepted as true stores of value (money). These metals can provide cover during times of social, political, and economic uncertainty. In a crisis, demand for precious metals is high.
- Precious metals, especially gold, historically maintain value. Gold and silver have kept their value throughout history.
There are also some very logical reasons you might want to avoid precious metals.
You have a low tolerance risk. Investing in precious metals is not for the faint of heart. If you don’t have a stomach for risk, the inherent volatility of precious metals will keep you up at night.
There are issues with storing precious metals. There’s an old saying about gold: “If you don’t HOLD IT, you don’t OWN IT.” While it’s possible to invest in precious metals indirectly through exchanged traded funds (ETFs) or specialized mutual funds, those vehicles decrease one of precious metals’ greatest strengths, namely its’ liquidity. In the event of a crisis, it might be challenging or outright impossible for you to access your supply of precious metals. That means you’ll either have to pay for vault storage or keep your gold and silver at home. As your precious metals collection grows, there is an increased risk you could be targeted by criminals. Also, since most homeowners’ policies limit the amount of gold and silver they will insure, you might only get a fraction of your collection’s value should there be a fire or robbery.
Summing it up: In times of uncertainty, many people add precious metals to their investment mix. Gold, silver, and other metals have a history of desirability.