Humans have been looking for wealth for over a thousand years. There have been new ways to accumulate wealth in modern times, ranging from investing in bonds and shares to establishing an enterprise in a foreign land. It may be that you’re currently learning about precious metals, and you’re unsure whether you should include them in your portfolio.
Read on as this article discusses what you need to know about precious metals. You’ll learn what precious metals are, the benefits and risks of incorporating these commodities in your portfolio, and much more.
Table of Contents
What Are Precious Metals?
Precious metals refer to rare and chemically inert compounds. The fact that they’re not abundant in nature, these compounds have a higher economic value. Also, these precious metals don’t oxidize or tarnish easily; thus, they have inherent value.
There are several categories of precious metals, including gold, silver, palladium, and platinum. Each of these compounds has a wide range of uses, but the common applications include making jewelry, industrial processes, and store of value.
Purchasing gold for your portfolio can be a challenging task. For this reason, it’s important to conduct extensive research to ensure you purchase from a reputable supplier. You can visit sites such as https://www.oxfordgoldgroup.com/ and other similar platforms to develop an insight on how and where you can purchase your preferred precious metals. It’s advisable to conduct enough background checks to gauge whether the firm will meet your needs and expectations.
What Are The Benefits Of Precious Metals?
There are several benefits of having precious metals in your portfolio, and they include:
- Inflation Hedge
Over the years, inflation has affected many investors leading to a reduced profit margin. Having precious metals in your investment will play a big role in protecting you from inflation and related issues. In the case of a high inflation situation, the precious metals tend to have a more positive convexity than most single liquid assets.
Factors that make precious metals a good inflation hedge include:
- Scarcity
Unlike dollars, gold and other precious metals can’t be printed. Thus, at any given time, there is a limited supply of these naturally-occurring compounds. With a low demand, the prices tend to rise, ensuring they maintain their value.
- Industrial applications
The application of precious metals in industries is expected to rise exponentially over the coming years, increasing their demands. For instance, silver forms an important part of electronics and upcoming technologies. It will increase its industrial value, helping to protect your investment against inflation.
- Store Of Value
A store of value refers to an asset or commodity that maintains its value without depreciating. Thus, you can easily liquefy your assets into money without losing their value. One example of a store of value is precious metals.
Humans used precious metals to conduct their transactions. For instance, gold and platinum were used as a store of value due to their portability and divisibility. Many countries used the gold standard to back up their currency to maintain its worth without depreciating.
It’s advisable to understand to conduct extensive research to incorporate the right precious metal for your portfolio. It will ensure you maintain the value of your wealth and assets in case of political and economic instability.
- Portfolio Diversifier
Precious metals are considered good portfolio diversifiers as they reduce the general risk of your investment. Diversifying your portfolio will be important in ensuring that you receive a higher return with little or no risk than when you depend on one security feature.
The reason why precious metals are considered good diversifiers is that they have a negative correlation with other assets such as property. Thus, your precious metals may maintain their value when other assets are affected by an ongoing crisis such as inflation. It will not only improve your profit margin, but it’ll save you from losing your entire investment.
Are There Any Cons Of Investing In Precious Metals?
There are several risks associated with having precious metals in your portfolio, and they include:
- Price Risk
The price of precious metals depends on market forces such as demand and supply. Thus, the value of precious metals may vary, and sometimes the price might be lower than the purchasing cost. You should understand that if the price drops to zero, there are high chances you might lose your entire investment.
- Security Risk
It is another disadvantage of precious metals. Storing the physical form of precious metals in safe fault may expose your investment to the risk of theft and loss due to high prices and value ln. Thus, it’s important to ensure your assets with a reputable insurance cover. Also, investing in digital investments such as futures may reduce the security risk.
- No Passive Income
Unlike stocks and mutual funds, the physical form of precious metals doesn’t generate passive income. Although it’s a great investment in the long run, precious metals may not be suitable if you want to improve your income margin with your investment.
How Can You Invest In Precious Metals?
There are several ways you can incorporate precious metals into your portfolio. They include:
Precious Metals IRA
Unlike a typical individual retirement account (IRA), this self-directed IRA allows you to invest your money in several assets, including precious metals. The IRA account will create a channel for your retirement plan. It’s because the value of these precious metals has remained steadily for many years, thus reducing the risks and volatility of your investment.
Bullions
This refers to the physical form of precious metals, including bars and coins. Bullions are preferred by people who want a physical touch of their wealth. But as mentioned above, possessing a physical form of precious metals may put your investment at the risk of theft or loss. Thus, it’s important to conduct extensive research to identify a safe vault for your billions.
Take Away
As discussed above, precious metals have become a sought-after investment over the past few years. There are several benefits of incorporating precious metals in your portfolio, including forming a haven for your investment, security of value, and diversifying your assets. On the other hand, several risks are associated with precious metals investment, such as price concerns, security, and lack of passive income. Thus, knowing all of those pros and cons of having such precious metals in your portfolio might help.
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