Why You Should Diversify Your Metal Portfolio
A diversified portfolio that includes several different Precious Metals increases the safety of your holdings. Dividing your acquisition among Gold, Silver and Platinum, for example, breaks up the risks associated with single-metal investments. When you diversify with multiple types of Precious Metals, you increase your opportunities for growth. There are a number of ways to build a diverse portfolio and several best practices to ensure you invest wisely.
Creating a Diversified Portfolio
For anyone new to investing, diversification means that you own an assortment of different assets that have uncorrelated prices. Some economists suggest that diversification requires large sums of money, but when it comes to Precious Metals, that could not be further from the truth. With Gold, Silver and Platinum all on the market in increments as small as 1 gram, anyone with even a tiny amount of money to spend can start a diversified portfolio. If spot prices of a particular metal stay stagnant, you may find that one of your other metals starts to increase in demand and market price. How much Silver is worth during a particular month has little to do with global demand for Palladium, so prices are usually unrelated.
Even though Gold, Silver, Platinum and Palladium are all commodities grouped under the name Precious Metals, each has a unique place in the market, with supply and demand that fluctuates independently of one another. Because Precious Metals are scare, investment prices are known to be higher. For newcomers, scarcity means the supply is limited and extra quantities cannot be manufactured. Several options, such as Silver and Platinum, have many aesthetic and industrial uses, meaning demand can increase from multiple fronts.
What Precious Metals to Include
Gold is the most popular metal for investments in the world. Even if you can only afford a small amount at first, a strong portfolio will always hold some amount of Gold. Because of its popularity, Gold has a reputation of being the easiest to buy and sell, no matter the conditions of current markets. Many today think of it as the first and only global currency.
Silver is the least expensive of all Precious Metals and therefore easy to acquire on a budget. When purchased at the right time, a bar or round of Silver is affordable to almost every investor. Even though history has shown that, compared to Gold, there is a smaller pool of Silver buyers, it still has a broader number of industrial uses, so there always seems to be a flow of demand. It should be noted, however, that even if you start building your assets with Silver, make sure one of your goals is to invest in Gold as quickly as possible.
Once you have secured holdings in both Gold and Silver, the next investment you should turn to is Platinum. Typically, the price per ounce for Platinum has been higher than Gold. This difference is partially due to Platinum's rarity, but also because of industrial uses. It is an essential component of catalytic converters, so as long as there are fuel-powered cars on the road, Platinum will be in demand.
Palladium is a close relative to Platinum, both in its metallic properties and price range. While Palladium has historically traded at spot prices lower than Platinum, Palladium can go for stronger prices than Platinum on some occasions. For years, Palladium was traded almost exclusively within the automotive industry, but mints have begun to strike Palladium coins, bars and bullion rounds for investors to hold.
Planning your Asset Allocation
Smart portfolio managers look to diversification for many benefits, including security in the event of a recession, more opportunities for high returns and to hedge against losses in the rest of their portfolio. Asset allocation takes more time than click-and-go stock trading, so do proper research to ensure that each purchase is informed and timed well.
You can even diversify the type of metal investments you hold. The options include Precious Metals stocks, futures and of course owning real bullion. Also keep track of all of your expenses. When you acquire a variety of holdings over the course of several months or years, it becomes easy to lose track of taxes and transaction fees. Practice good record keeping and monitor the totals regularly.
As your portfolio grows, it’s a good rule to keep a large percentage of your Precious Metals holdings in Gold. Wait until you have some level of holdings in both Silver and Gold before purchasing Platinum and Palladium bullion. After gathering a robust assortment of bullion holdings, consider adding collectible coins to your collection. Old coins carry historical value in addition to their Precious Metals content.