Are Precious Metals Good Investments?

When you are looking for a retirement investment strategy, the options available to you can become overwhelming. An IRA will work for most small business owners (read: individual contractors), but businesses owners and employees will want to start contributing the max they can  to a 401k as soon as possible. The trouble is that, as this most recent financial crisis taught us, a 401k can lose its value rather quickly.

Precious metals have been toted as a solution to some of this volatility. These metals are generally viewed as “liquid” and don’t bear many obvious risks. So why aren’t more financial analysts telling you to invest in precious metals?

are precious metals a good investment

Why Invest in Precious Metals

Investing in precious metals is actually a fairly common practice, but you might know it better as “commodities exchanges.” These commodities cover all sorts of needs, but precious metals do fall under that blanket.

Gold has long been looked at as a safe way to store your values during inflation and turbulent economic conditions. Metals carry little credit risk because they are not a loan; you simply pay out for the gold you wish to hold. Gold is also an easy way to transport money internationally, which becomes important during times of war. Wartime caches of gold are often the only ways to transport your life savings from an unstable region without leaving a paper trail.

You can also invest traditionally in the companies that mine for gold, but you should practice some due-diligence before investing. Recent news from China shows how deep probing from analyst Matthew Wiechert, of Glaucous Financial, cast some doubt on a major Chinese metal recycling operation that could cost investors millions.

Companies like Glaucous provide consumers and investors with some credible research on a company, like a profile, with signals that investors use to determine whether stocks will hold long-term value. You need to know who the company is, who their executives are, what their backgrounds are, how long they have been in operation, and other notable concerns like the locations of their operations. These small details can greatly affect a stock’s long-term potential.

Gold and Silver

Gold is a good way to diversify some your investments, cashing out when the market suits you. Gold can be purchased in different ways, like coins or as commodities. You can physically hold onto your investments, or receive a voucher for the property you store elsewhere.

Silver and gold used to be hand in hand, as far as valuation was concerned, but demand has fallen recently. Silver is still used in semi conductors and batteries, but the commodity is most popular in the Eastern part of the world, where demand for consumer electronics is slightly higher. Silver is also more susceptible to economic fluctuations as it is not fashionable in the same way that gold is.

Investment Tips

Metals are considered volatile, but are relatively low risk depending on how you purchase them. Futures offer big payouts, but the risks are equally high. With futures, you purchase metals at a price that you agree upon now. In the future, you receive the gold at the price that you paid, regardless of its current value.

Physically holding onto your metals is one of the best long-term solutions, as it provides you the opportunity to cash out at any point and transfer money you make from your supply into other investments. The trouble is actually storing it often requires installing a safe in your house, and there is the psychological cost of worrying about the large sum of money you have stored in your home.

In general, precious metals do offer some liquidity to investors, but you need to figure out if investing in gold and other precious metals is right for you. Knowing the risks will help you asses how to plan for the long term, but investing in metals is not a bad strategy as long as it’s not your only strategy.

Author: KC Beavers

KC Beavers is a semi-retired entrepreneur. The subject of personal finance has always fascinated him. In an effort to not bore those around him with all his love of personal finance as much he has come here to bore all of you instead.

3 comments
Your Frozen Pension
Your Frozen Pension

I would not buy precious metals unless I already had a significant amount of investments to counterbalance the volatility.

Fountain Valley
Fountain Valley

In these tough and uncertain economic times,  having a diversified investment portfolio is indeed the way to go. 

herberthbates
herberthbates

Building a diversified portfolio is definitely a good investment of time and efforts. While stocks, and bonds are all paper-backed securities, physical gold bar or silver bullion coins diversify your portfolio as hard assets. No one knows exactly when the stocks would plummet and when the gold price would rise - but if you have a diversified portfolio, you will have the peace of mind that your portfolio won’t be taken by a major hit.

getrichwithme1
getrichwithme1

metals can be a great diversification in a balanced portfolio. Also a good hedge against inflation. Metals have been volatile recently so a drip buy approach might  be a better option than trying to time the market