Note: This article is for informational purposes only and should not be considered investment advice. Speak to a qualified financial advisor if you have questions about investing.
One principal of investing is to build a balanced portfolio of investments.
Instead of just buying stocks, for instance, a wise investor may purchase stock market index funds, bonds, real estate, gold, and cryptocurrency. All these assets make up the “portfolio” of investments.
While stocks and real estate are well understood, there’s more confusion surrounding precious metals. Should investors be including gold in their investment portfolio?
Gold is also somewhat controversial as an investment. Depending on who you ask, it’s the best investment ever, or a complete waste of time.
What role do gold and other precious metals play in your investment portfolio? This guide will set the record straight.
Precious metals are physical metals that are rare and have a high economic value. The main precious metals that are relevant to investors include:
Most investors buy physical precious metals, which come in the form of bars, coins, and rounds. It’s also possible to buy “paper” precious metals in a brokerage account, via ETFs and other investment products.
There are many reasons that investors add gold to their portfolios. Here are some of the most common:
As a hedge. A “hedge” is a strategy used to limit the potential loss on an investment, by making a second unrelated bet that balances that original investment. For example, an investor in pricey tech company shares might hedge their bet by also buying relatively safe utility or healthcare stocks. Precious metals are a common hedge for many different types of investments. Gold is often seen as a general hedge — a way to protect a portfolio from the unknowns.
As a hedge against market volatility. The price of gold and other precious metals often holds up well during times of market volatility and during market crashes.
As a hedge against inflation. Inflation is the decreasing buying power of money over time. Gold has kept up with long-term inflation for thousands of years, preserving its buying power since the days of the Roman empire.
As part of a retirement savings strategy. Saving for retirement is vital. Gold and other precious metals can add unique attributes to retirement strategies, mainly due to the added diversification (see below).
To add diversification to a balanced portfolio. Diversification is essentially spreading out your bets. A diversified portfolio will consist of many different companies, geographical exposures, and asset classes. Precious metals prices move independently from stock and real estate prices, which makes them an attractive portfolio addition to improve diversification.
As part of a strategy to time the market. Timing the market involves buying and selling assets strategically. Gold is a popular bet during times of geopolitical uncertainty, war, and during inflationary periods.
To add “safe haven” assets to a portfolio. Safe haven assets are assets that tend to hold up well during “Black Swan” events, such as financial crashes or outbreaks of war. Gold is a classic safe-haven asset, while commodity precious metals like platinum and palladium have also proven a valuable hedge during times of instability.
To have a physical asset to buy and hold. Most investments are intangible — they appear as just numbers on a screen, proof of fractional ownership of some distant company. Real estate and precious metals, on the other hand, are physical assets that you can touch and appreciate in reality. This offers a psychological benefit, and could also be a lifesaver in the case of a true economic collapse or significant emergency.
The best way to invest in gold, silver or other precious metals is to buy investment-grade bullion from a trusted local source.
If you’re in the Seattle area, that means coming to Bellevue Rare Coins — the Northwest’s premier precious metal dealer since 1979.
If you’re not in Washington, look around for the most reputable coin shop or bullion dealer in your area. Buy gold and silver coins (or bars), store them safely, and rebalance as needed to keep your asset allocation in line.
For example, if you decide to invest 5% of your assets in precious metals, you will need to keep buying more as you buy other assets like stocks or real estate. You can make small, routine purchases, or save up for the occasional large purchase.
Dig in deeper in our complete guide on investing in precious metals.