The investment landscape isn’t quite as simple as it was 10 years ago. In the past, investors felt confident diversifying their portfolios with stocks, bonds, and real estate holdings, feeling that assets could sufficiently protect them in case of economic struggles.
In 2008, though, the housing market took a turn for the worst, and as real estate investments lost value, so too did paper investments in stocks and bonds. Millions of people wound up losing money, and traditional theories of portfolio diversification were strongly challenged.
Since then, the value of metals like gold, silver, platinum, and palladium has trended upward, as more investors have looked to precious metals investing to strengthen their portfolios.
Investing in Precious Metals
The major types of precious metals are gold, silver, platinum, and palladium. Each is traded on the market and can provide security and spread risk in various situations.
Gold and silver have been in use the longest, as people having turned to these materials as currency for thousands of years. They are still used in different currencies today, although most countries have discontinued the use of the gold standard. People invest in gold, silver, and the other precious metals primarily as a way to hedge against currency issues. Whereas paper investments are susceptible to factors like inflation, precious metals are valued for their intrinsic properties.
These materials are also valued for their industrial uses. Platinum, for example, is used in computer, automobiles, and medical supplies. Palladium is similarly useful for certain auto parts. Precious metals investing can vary over time according to the industrial demands of these metals, although the effect of such demand varies by material. Silver, for example, is highly connected to the demand for its practical qualities.
Types of Investment
Interested parties can invest in precious metals using a number of different methods.
Buying bullion and coins is the most straight forward method of precious metals investing. Certain banks and private companies produce bars of each metal, and these bars can be purchased as a safeguard against currency crises. Coins are produced by governments and by private companies and can hold varying levels of each metal.
Buying into mutual funds include holdings in these materials is another method for precious metals investing. Individuals can purchase shares in different exchange traded funds to gain the risk-return ratio that best suits that investment tastes. Some of these funds involve investment in only precious metals, while others involve investment in a basket of commodities.
Alternatively, investors can buy stock in mining companies. As the price of each material increases or decreases, the stock in the company follows, although the connection is typically not so immediate.
Cautions for Investors
When investing in precious metals, it is important to note that these investments still carry some risk.
First, every investor needs to be aware of the factors that drive the price of each metal. In addition, they need to be clear about exactly how much they are investing by verifying the credentials of each vendor or mutual fund.