If you’re more than a casual investor, who happens to take a peek at their mutual fund performance from time to time then chances are you’ve heard the saying “Smart Money” before. But what does it really mean?
The dictionary defines it as: Money bet or invested by people with expert knowledge; or knowledgeable people acting collectively. If you take a slightly deeper look at what’s going on in the economy and the stock market, you will start to see some “Smart Money” trends starting to emerge.
Recently the price of gold and other precious metals has been steadily rising. This trend might even leave you wondering if you need to make some changes in your portfolio to invest more in gold and other precious metals.
Even the most simplistic investing portfolio can benefit from diversifying into gold and precious metals to essentially hedge against inflation. So, let’s take a closer look at your options as well as the reasons why you should invest in gold and precious metals.
The most common precious metals for investment consideration are gold, silver, platinum and palladium. They group together largely because they have similar properties and common factors.
Precious metals tend to be heavy for their perceived size, highly durable, and electrically ductile, as well as physically malleable. At the same time, their general rarity also makes then desirable for monetary metals. Historically, these factors have encouraged investors to place their trust in these assets for centuries!
While they do share many common traits, each precious metal also have a few unique properties that also make them unique. These characteristics can potentially affect the value patterns and the price per ounce of each. Since each metal can potentially have different uses in different sectors, the price per ounce for one can change without it affecting the price of the others.
Individuals and investors alike tend to purchase or own gold bullion as well as jewelry for its intrinsic and extrinsic value. It is also available in many areas throughout the world and is drawn into many sectors, including jewelry, technology and much more.
In a certain light, silver is often thought of as being a hybrid metal. Its price can be driven by its investment value as well as its industrial uses. Just like gold its supply is diversified and global.
Platinum’s demand is broad. It is found in many commercial and mechanical applications, including the catalytic converter found in your car’s exhaust system. At the same time platinum is also prized for its luster, which makes it appealing for jewelry.
Palladium is essentially a form of platinum that is more common in industrial sectors. It is commonly being used to replace platinum in automotive applications.
Understanding Your Diversification Options
It’s important to understand that there are different ways you can invest in gold and precious metals. Some are direct, and others are indirect or use more subtle diversification mechanics.
Physical Gold And Precious Metals
Nothing is more real than physical gold. You can hold it in your hand, you wear it, or you can lock it away in your safe for long-term financial insurance.
Most people are comfortable keeping several hundred dollars of gold and other precious metals in their home in one form or another. In most homes it wouldn’t seem outrageous to tuck some gold coins tucked deep in the back of the sock drawer, an elegant necklace or other pieces of jewelry in the jewelry box.
Casually keeping much more than that in the house, is likely to make you feel nervous about problems with a break-in or a fire. If you wanted to go a little further to keep a little more gold on hand, a highly rated, and fireproof safe is a very good idea. Another wise option would be to keep some in a safety deposit box to store my precious metals. Having a professionally fortified location hold and protect your gold will give you added peace of mind.
The issue with keeping modest to significant amounts of gold and other precious metals on hand is that tangible assets tend to be less liquid than some of your other precious metal investment options.
Precious Metal EFT’s And Stocks
Electronic Traded Funds (ETFs) and precious metal stock are a great option for addressing potential liquidity, as they can be purchased and sold on just about any stock exchange. Most gold, precious metal funds and ETFs are already represented which makes it easier to buy a diversified group of precious metals without having to make a back-breaking investment.
Yet, it’s also worth keeping in mind that for the average investor, gold and precious metal futures can be somewhat risky as they are similar to trading stock options. When you purchase futures you essentially have a limited time frame to buy or sell precious metals at a certain price. To be able to use gold future effectively, you need to be able to confidently predict price increases, or decreases to trade precious metals futures, while still making a profit.
Gold and other precious metal mining stocks can also be an appealing way to diversify your portfolio into precious metals. Still, you need to keep in mind that they can be a high-risk with high-reward proposition.
Precious metal mining stock valuations tend to be more volatile than the price of the metals themselves. This trend is linked to a variety of factors including the price of gold, the basic cost to produce the precious metals, past market trends, and futures speculation. For the casual investor, investing heavily in mining stocks might not be the best option. However, it could yield profitable results if you take the time to research and fully understand the market conditions.
With these factors in mind, you can start to dial in the ways that are best for you to diversify your portfolio to include gold and precious metals.
Market conditions have been showing a large scale sell-off in the fourth quarter of 2018, at the same time gold and other precious metal investment options have been increasing. Take a moment to assess your portfolio and understand your threshold for risk. You can then allocate a thoughtful percentage of your portfolio into precious metals. Then factor this information into your refined asset allocation plan as you rebalance your entire portfolio.