Everyone knows that a healthy investment portfolio consists of the right mix of stocks, bonds, cash, and even real estate. But another important and often under-utilized resource to add to this diversification is the contribution of precious metals.
Although there are many kinds of precious metals, the two most popular ones that are used for investments are gold and silver. Gold and silver have been regarded as one of society’s oldest forms of currency. Their appeal comes from 1) the fact that they are a tangible asset that we can hold in our hands and 2) the observation that they tend to retain their value even as the economy tends to fluctuate.
Performance:
If you think of gold and silver as simply coin collecting, you could be missing out on the bigger picture! How important could gold and silver be to your portfolio? Consider what kind of performance you would have experienced in these markets over the past 10 years from 2001 to 2011:
• In 2001, gold was priced at $276.50 per ounce and silver was priced at $4.37 per ounce.
• By 2011, gold had increased by 454% to $1,531.00 per ounce and silver had increased by 704% to $35.12 per ounce.
• By contrast, the S&P 500 stock index had only increased by 9.54% from 1148.08 to 1257.6 points.
Buying Gold and Silver:
If you’re interested in owning gold or silver, then you should know that there are many ways to add them to your investment portfolio:
• One way is to invest in their market index through an ETF in the stock market. Some ETF’s claim to back each share with actual physical gold or silver which provides the investors with confidence in the fund. Although this is a very quick and easy method, it does not allow YOU to actually own the physical metal itself.
• Another way is to actually buy the physical metal in the form of bullion, bars, or coins. This is nice because you can actually hold the tangible metal. However, it is much harder to command market price for the physical metal. Plus there are security and tax issues to deal with.
• Another way is to again buy the physical metal but through a broker that can store it securely. This type of service will act as a broker for purchasing the gold and silver and then makes the arrangements for the storage and insurance of the assets at a reduced cost.
There are a few who would insist that the run-up of gold and silver prices has created a possible bubble in price. But many economists argue that there are still very turbulent economic conditions ahead for the world economy. Central banks in many countries seek to hold onto their reserves as the U.S. dollar becomes weakened over the past decade. Perhaps ownership in gold and silver may prove to stand as a wise hedge against the unforeseen.
Editor’s Note: Readers, what is your opinion of owning gold and silver? Do you feel it provides protection for rough times ahead? Do you actually own the physical metal, or do you have another means of ownership?
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The only gold I own is my wedding ring! It might feed us for a couple weeks, that’s about it.
Michelle recently posted..Should We Buy A Dog? (The Conclusion)
You’d probably be surprised at how much it’s gone up in value!
I think investing in precious metals like gold and silver is fine, as long as you limit the total investment to 10% of your portfolio. When the price of these metals goes up like in recent years, people tend to get really excited and buy into the hype. The time to buy is when nobody else is buying.
Ryan recently posted..Ripoff Report #2 – Lottery Winnings, Pyramid Schemes
Agreed. No betting the farm on metals. It’s a safe haven for your cash (especially if the dollar continues to fall).
I always cringe when I see things like this. The problem with gold is that it’s value is almost entirely psychological. They are mining more gold all the time, so it isn’t like it’s a scarce good. And it really isn’t used in very many manufacturing processes at all. Gold doesn’t produce earnings or pay dividends. It’s value relies solely upon a fearful public that believes if the world economy collapses that their gold will still be worth something. Maybe it’s worth it to invest some money in it and ride the wave before it comes back down to earth, but I wouldn’t put too much into gold.
Justin @ The Family Finances recently posted..Lessons Learned: College Financial Aid
I would think of it like an alternative for your cash and only limit a small portion to it. Its value is certainly tied to fear, so bear investors always make dramatic cases for it!
Gold is at 3 month low(around $1590 per ounce). I wouldn’t be surprised if gold heads back higher into $1800 or even $2000 by year end due to economic unrest in Europe and overall lack of lack of confidence in the current markets.
Shilpan recently posted..How to Find A Job in Any Economy
I agree. With the upcoming election and still no good resolution in Europe, keep your eye on the price. It may surprise some!
My question is how do you get the best price out of selling physical gold? Who do you take it to and how much of a discount do you end up losing?
Lance@MoneyLife&More recently posted..An Easy Way to Save Money (and Calories) While Dining Out
Lance – I’ve looked into that myself on the side and it doesn’t look good. Buying real bars or coins and keeping them in your house is pretty difficult to turn a profit. Dealers will always try to talk you down whereas some of these other alternatives seem to stick closer to market price.
I don’t know too much about investing in Gold or Silver. I would probably go with ETF, I’d be afraid to hold onto the actual gold or silver.
Not a bad idea. The ETF would certainly be the easiest!
Okay, read this knowing that I have no idea what I’m talking about. But I think gold in particular is worth more than it ever has been. At least in recent times. So I’d be afraid that buying now would be a bad investment since it’s most likely going to return down sometime.
femmefrugality recently posted..Use Your Library, People.
It has dramatically risen in price and some would even call it a bubble. Although I’m pretty optimistic about the future, I think there will still be some short-term turbulence that will cause the price to fluctuate even higher (even if it is brief).
[...] Adding Gold and Silver to Your Investment Portfolio [...]
MMD,
I am a big fan of your overviews as this one. It gives me just enough depth and data, not too much though. It gives me the lay of the land at a glance. It’s tight and to the point.
Love it, forwarded to my wife – she was curious about such kind info.
Alik Levin recently posted..Consultants Change a Lot In 59 Seconds
Thanks Alik! I hope this helps your family to make great plans for the future!