A key element of building wealth is asset diversification. The process of determining which mix of assets to hold in a portfolio is a personal one, but precious metals offer the investor opportunities, risks, and rewards not available in other asset classes. The addition of precious metals to a portfolio, however, must be done through careful consideration of which metals to own.
Amid the criteria for selection of precious metals, tangibility remains at the forefront. It is possible to purchase financial products that are tied to gold and silver prices, but owning the physical metals is the best way to protect your investment from counter-party risks. However, when purchasing metals for investment, be frugal; avoid objects such as “rare” coins or special productions. These alternatives to bullion tend to mark up the actual value, resulting in an investment that is less valuable than holding the plain standard bullion.
There are some limits to being frugal. The lower-premium products tend to be the largest bars, but these are impractical for anything more than bulk storage. Smaller units can be purchased and these can be useful for bartering or trading. Again, consider your financial goals and lifestyle; the product that best fits the goals is the best product for you.
While there are many precious metals to consider when you diversify your assets, only gold and silver are universally recognized. Liquidity is important as you will want to be able to sell your investments on your time table, not someone else’s. Most metal dealers will buy gold and silver with little hassle, but other metals, such as platinum and palladium, are far less liquid. Your goals will dictate the degree of liquidity needed with your investments.
Other issues that come into play with precious metal investing include purity and reportability. Purity is rarely an issue as most common gold and silver bullion products are IRA-eligible meaning they meet the government standards for inclusion in retirement portfolios. Even gold coins that use base metals to add strength to the coin contain as much gold as a .9999 pure coin. Reportablity is also likely not a key issue. Only actual cash transactions of more than $10,000 must be reported to the government. If you purchase less or use credit cards, you will be in the clear.
Investing in precious metals is a significant step for the individual investor. Using the key points above, each investor needs to investigate their specific financial needs and how precious metals will help them achieve their goals. Understanding the financial products makes the decision-making process easier and most appropriate to the needs of the investor.
