Having a diversified investment portfolio will protect your wealth from plenty of economic changes. While there are no rules set in stone for investment, there are some aspects you can learn about precious metals that you can use to determine your next moves. Their inherent volatility and their perceived role as a store of value can steer some away from placing their money in this area, but here we show you a breakdown to answer if investing in precious metals is a good idea in 2021or not.
What are Precious Metals?
First, precious metals are cataloged as such when they have economic value and finite supply. Gold would be at the top of the pyramid since it’s by far the most popular and sought-out metal for investment. Interestingly, rather than being used as a manufacturing material, most actors in the market stack gold away, which creates the illusion of scarcity. Silver, platinum, and palladium appear as alternative options for investment as well, depending on how you assess their particular risks and opportunities. However, what they share in common is that all these metals are tangible commodities, and no matter what happens, they’ll keep their intrinsic value.
How can I Invest in Precious Metals?
We assume that you’re interested in adding any precious metal into your investment portfolio. In that case, you’ll be able to do so through exchange-traded funds, common stocks, certificates, and even purchase bullion bars or coins if you have the logistics to store them safely. For those investors who do not want to deal with any transport and storing hassle, for them, hedging investment can be a safer strategy if there’s any value loss. In gold, oil prices and inflation are the two major factors that influence its price. However, the prices stabilize between the range of $1,200 and $1,500 depending on the international scenario. Silver ranges lower since there are more mining operations constantly extracting this mineral. However, this may change at any moment with any technology rendering its use obsolete. At the same time, platinum and palladium easily reach $1,800 due to their rarity and are also subject to change if the demand switches around.
Suppose you’re interested in obtaining bullion bars or coins. In that case, you must research and purchase from an excellent website to ensure that the vendor can include your purchase in your precious metals retirement account if that option is available in your country. Otherwise, gold and silver coins have spot and collection value simultaneously, so you can look at your investment from two different angles if preferred. Certificates can also give you ownership of the metal itself. However, in case of losses or any major disaster, it’s improbable that a piece of paper can help you much.
What is the Risk?
Just like any other investment, if you place too much money into precious metals, it could easily backfire, especially when there’s economic instability. The primary benefit from this investment comes from its function as a hedge against inflation. During recessions, gold has kept a steady value. However, it’s doubtful that you’ll be building significant wealth from purchasing any precious metal, and thinking otherwise, would be misguided. Think of it as a defensive mechanism for your direct investments rather than your primary option. Besides, if you buy stocks from mining companies, they have a historical background of poorly managed and losing significant money due to mismanagement and its negative environmental impact.
What Should I Do?
While you can only assess your particular situation, most experts agree that having between 5% to 10% of your investment portfolio allocated to precious metal is a reasonable expectation to manage and monitor alongside the financial situation worldwide. It’s up to you to decide how to prioritize between exchange-traded funds or owning physical gold and silver. But given the risks and opportunities laid out for investing in precious metals, keeping an eye out for dips, and knowing when to sell stocks will be crucial for the success of your investment. As a general rule of thumb, you should be looking to purchase gold as long as it’s not excessively above the money supply trend.
Even if you’re not fully interested in investing in precious metals for 2021, understanding the market behind it is still a valuable lesson in the economy and can help you with your financial decisions should you ever feel like expanding your investment portfolio. Once you feel comfortable enough to make the jump, feel free to talk to your investment advisor to understand what’s the best option for you in the precious metal market.
