Diversifying a Portfolio through Precious Metals Investing

With the volatility of global markets, many individuals are choosing precious metals investing as a way to diversify their portfolio. Historically, the four leading precious metals in the commodities market (gold, silver, palladium and platinum) tend to perform well during times of inflation or economic uncertainty. In fact, they have shown to be an effective solution for protecting an individual’s long-term investment strategies.

A Safe Haven of Wealth

Since long before the Roman Empire, precious metals have been considered the ideal safe haven assets for holding and displaying wealth. For thousands of years, precious metals including gold, platinum and silver have been used for currency, bartering and manufacturing beautiful jewelry. Even today, precious metals are recognized as a financial and monetary asset around the world. In fact, investing in precious metals is one of the easiest ways to pass wealth down to future generations, without government intrusion or knowledge.

The Leading Precious Metals

The four leading precious metals in the commodities market include gold, silver, platinum and palladium. They are offered to the public in a variety of options that include bullion bars, rounds and coins. In addition, they can be secured in numismatic coins that have been used as currency now and in the past. Each precious metal is unique in its properties, and how it is used worldwide. These include:

• Gold – This yellow metal is highly resistant to oxidation. It is used in a variety of industries because of its malleability and highly ductile properties. It is used in jewelry, coinage and industrial applications. It continues to be the most popular precious metal for storing wealth and sets the standard for currencies around the world.

• Silver – This lustrous soft-white metal has the highest thermal and electrical conductivity of all the available precious metals. It is found in free form and with other minerals. It is extensively used in a variety of industries including coinage, jewelry, photography and tableware. The chemically active nature of the metal can cause it to change in tones and color when directly exposed to various elements and oxygen.

• Platinum – This ductile, malleable, precious, heavy gray-white metal is extremely resistant to corrosion. Because of that, it is used in a variety of industrial applications that include vehicle emissions control devices, electrical contacts, laboratory equipment, dentistry and the jewelry industry. In recent years, investors have flocked to purchase platinum bars and coins in bullion form to diversify their portfolios.

• Palladium – Once considered a “throw away” commodity, it has become extremely popular in a variety of industrial applications in recent years. The chemical properties of palladium resemble platinum. The metal has long been found when mining nickel, and is used primarily in jewelry and as an industrial catalyst because of its anti-corrosive properties. The spot price of palladium was once extremely low when Russia was dumping huge quantities of the precious metal into the commodities market. Now that Russian palladium stockpiles are dwindling, the increased demand and decreasing supply has allowed the precious metal to reach all-time price highs.

Holding Physical or Paper Precious Metals

Many individuals choose to invest in precious metals over other trading instruments including paper (stocks and bonds), and real estate. While every form of investing is speculative, owning the physical assets of precious metals serves as a hedge against numerous forms of economic instability and/or political calamities.

For the investor, there are two basic options when purchasing precious metal – owning the physical assets or paper. The investor can either own the value of a precious metal in paper, or take physical possession. Investors own precious metals holdings that include:

• Bullion Bars and Numismatic Coins – The leading precious metals are available in bullion products that include stamped coins, rounds and bars. Bullion is produced by private companies and refiners in its most pure form (99.5% or greater). The value of bullion products depends on the content of the precious metal by weight rather than numismatic worth. Numismatists (coin collectors) choose to invest in precious metals through collectible or rare coins. Bullion and numismatic coins tend to be the most popular types of product for generating profits through precious metals investing.

• Exchange Traded Funds (ETFs) – Exchange traded funds are a liquid, convenient way to purchase or sell precious metals. These funds closely track the spot price of gold, silver, palladium and/or platinum. Some funds allow the investor to magnify their exposure to swinging prices to increase their potential of both growth and risk.

• Mutual Funds and Mining Stocks – Some investors choose an indirect method of owning precious metals using mutual funds or mining stocks. However, the price of the stock or fund can fluctuate at a different rate than the precious metals themselves. Perceptive investors choose to stay with fund managers that have a solid historical performance record and offer low expenses. Some believe that investing in stocks of the mining company is not actually investing in precious metals, but in the company that mines the commodity.

• Futures and Options – Any investor looking for huge amounts of leverage and liquidity will make big bets and take great risks on the precious metals using futures and options. Like any other type of futures trading, the precious metals futures and options markets are a risky method for investors. It often brings the greatest potential to generate profits and losses.

• Certificates – Precious metal certificates provide investors exposure to all of the benefits of holding physical gold, silver, palladium or platinum without the need of storage or transportation. However, a certificate is still just a paper-traded instrument and might have questionable worth during times of economic uncertainty or disaster.

Limited Quantities

Fortunately, for the investor there is only a certain limit to the amount of commodities available in the marketplace. In fact, due to the high demand there will never be an overabundance of gold, silver, platinum or palladium. The precious metals cannot be made from other elements, and are mined in limited quantities every year.

There has been a significant increase in the value of the four leading precious metals during the period of economic uncertainty over the last five or six years. Owning the physical asset of a precious metal and storing it away is a proven method for securing financial wealth. In addition, because bullion bars, coins and rounds are lightweight and expensive, it is easy to transport wealth around the world. The coins can be used for bartering for goods or to exchange for currency in locations worldwide.

Getting Started in Investing

Being successful in precious metals investing involves a solid investment strategy. The initial step in the process would be consulting with a trusted registered financial advisor to determine what portion of your investment portfolio should be diversified with precious metals. The advisor will likely recommend a diversification of 5% to 20% of a total investment portfolio. However, the financial mentor might advise you to commit to one specific type of precious metal, or diversify.

In fact, your financial guide may be advising you to sell off underperforming or risky assets to make room in your portfolio for the newly acquired commodities. This strategy may be based on purchasing small quantities in gradual amounts based on your cash flow.

Timing the Market

In addition to purchasing precious metals, timing the market may be essential to the success of generating profits. If your financial advisor is using the purchase of precious metal commodities as a short-term strategy, it is essential to get into and out of the market at the right time. However, accurately timing the precious metals commodities market for long-term strategies for success is not always as important. It works well to remain flexible about investing in the market. It could be that waiting for the spot price of gold, silver, palladium or platinum to dip down to a fixed point is unrealistic.

Finding a Reputable Dealer

It is imperative to purchase precious metals only from a reputable dealer. A well-established precious metals dealer will have a solid history and proven stability in buying and selling these commodities. The reputable merchant will be clear on the actual price of the purchased items and open about all the premiums added to the final cost. Companies including www.Monex.com offer a variety of options for buying precious metals to diversify an investment portfolio including outright purchases or secured storage.

Investing in gold, platinum, palladium and silver continues to be an easy way to meet investment goals and objectives when increasing profits in a portfolio. The precious metals offer a proven solution for protecting your assets while securing your future. Like every investment, trading in precious metals offer significant rewards and risks. However, with the status of the current economy, purchasing precious metals offers a proven alternative to your investment strategies.