How Much Should I Invest in Precious Metals?
Precious metals can be a great asset to your portfolio, and they can help to protect you against those inevitable economic downturns. While precious metals can protect your investments against economic recession and inflation, they also may fluctuate in price.
Also, it can be difficult storing large quantities of gold and silver and owning precious metals does not pay dividends like stocks do. Given these drawbacks, it is important to have a diversified investment portfolio.
How much of your portfolio should consist of precious metals?
The specific amount of your portfolio that should be dedicated to precious metals varies depending on your circumstances. Some individuals may do well with as much as 20% of their investments in precious metals; however, others may do better with as little as 1%.
Here are 11 important factors to consider when determining what quantity of precious metals you want to invest in.
Factor 1: Consider your current investments
If the vast majority of your investments are directly tied into the stock market, it is important to have a large proportion of precious metals in your portfolio. Precious metals act as a hedge against inflation and recession and having a significant amount outside of the market can offer a larger buffer.
Factor 2: Consider how your investments will do during times of inflation
It is also important to determine how your investments are likely to retain their value during periods of inflation. If your investments will not increase in value at the same rate of inflation, it is a good idea to buy a large quantity of precious metals.
Factor 3: Understand the strength of the economy
Carefully analyze the current economic situation in your country to make this determination. If the economy appears to be weakening, it may be a good idea to purchase a larger quantity of precious metals for your portfolio.
Factor 4: Check to see if financial institutions may be in danger
If there could be a collapse of a major financial institution on the horizon, investing a significant portion of your money in precious metals is likely to be a wise decision. During these economic situations, gold prices can rise dramatically. However, these types of collapses are quite unusual in most parts of the world, so do not be drawn into alarmist predictions of this nature without sufficient evidence.
Factor 5: Consider your risk tolerance
While gold and other precious metals have retained high value throughout most of human history, their prices can fluctuate quickly. Consequently, you need to understand your own risk tolerance. Generally, risk tolerance is accomplished through diversification. If your portfolio is dominated by a single type of investment, then increasing the diversity of your retirement portfolio through investing in gold and silver is a good idea.
Factor 6: Are you looking for rapid returns?
If you are looking for fast returns, you will likely be disappointed with precious metals. Gold and other precious metals tend to gradually increase in value over the long-term compared to other investments.
Factor 7: Consider the storage of precious metals
Storing large quantities of precious metals in a single location can be risky, particularly in if they are stored in one’s home. It is most prudent, therefore, to invest in a high quality safe, and consider distributing your physical bullion across multiple secure and accessible locations.
Factor 8: Consider the type of precious metal you are purchasing
The type of precious metal you are purchasing makes a big difference in terms of how much you should buy.
Silver bullion costs less than its gold counterpart. It is therefore possible to invest in larger quantities of silver than other precious metals. Gold and platinum tend to be priced higher, and are more commonly purchased in smaller amounts.
While it is important to invest in a variety of precious metals, carefully consider the price trend of each metal you are interested in. This can help you determine if your precious metals portfolio is tuned to your levels of risk tolerance and anticipated returns, and it can help you determine the quantity of each precious metal to purchase.
Factor 9: Should I seek professional financial advice to invest in precious metals?
Successfully investing in precious metals can be challenging. Only experienced investors should attempt to invest in precious metals without getting professional advice. For anyone who is less experienced with investing, it is important to seek out skilled financial advice. Not only can a financial adviser help you determine how much to invest in precious metals, but they can ensure that you invest in the right type of precious metals.
Factor 10: At what point in one’s investment career should you invest in precious metals?
It is best to invest more substantially in precious metals later on in one’s investment career due to their more modest returns. Those starting out their investment career will often do best with putting as little as 1-2% of their investments into precious metals. However, there are exceptional circumstances when it could be advisable to invest in more significant precious metals early in one’s career.
Factor 11: Consider if you are financially ready to begin investing in precious metals
Precious metals can be quite expensive. It is important, therefore, to invest wisely. Do not overstretch your budget. Going in debt for an investment is counterintuitive and should be avoided!
