Updated: Jan 31, 2021
Precious metals have been around since...well, before the Earth was actually formed. From an investment standpoint they predate any modern currency. But are they worthy of your investment?
Let’s dig in a bit.
What are precious metals?
There are a few metals that float to the top of being the best investment grade precious metals on the market.
Gold: This is a the big dog of all of the precious metal dogs. It has been used as a currency around the world for hundreds of years. When it comes to investing in precious metals, gold is hands down the most popular.
Silver: Silver is like the big dog's little dog friend. Silver has many more industrial uses than gold so it's value is derived from that as well as a currency. It's much less expensive than the other precious metals as well, making it an accessible investment for most.
Platinum: Of all the precious metals - this one is the rarest. Like silver it has many industrial uses, but unlike silver, it's not cheap.
Palladium: This is the baby of the precious metals from an investment standpoint, as it has only been on the scene for few decades. It is still not widely known as an investment option, but more and more mints are creating palladium bullion so this is changing.
How do precious metals perform?
There's honestly nothing overly impressive with the historical prices of precious metals. If you were to measure the performance of the overall market to the performance of any of the 4 major precious metals, over just about any period of time, the market generally wins. And generally wins by a lot.
Here are 10 year charts (from APMEX) showing the investment performance for all of the top precious metals.
As you can see Palladium has had a nice run up over the past couple of years, Platinum has been steadily going down and both Gold and Silver have made a recent comeback after a multi-year dip.
If you want to go into even greater detail Macrotrends has some amazing interactive charts for precious metals you can play with. Lots to geek out on there if you are interested.
What options are there to invest in precious metals? There are many different ways to get your money into precious metals, but the top 3 are:
ETFs: There are exchange traded funds for all types of commodities, including precious metals. Investing this way is liquid making it easier to cash out which is a nice benefit.
Stocks: Beyond ETFs you can buy the stock of different mining companies and other suppliers. This is a much less direct way to invest in precious metals, but it is an option that fits well for some.
Bullion: Bars and coins of the actual precious metal, in your hands (well, hopefully in your safe or safety deposit box). This is the real deal, can't get any more pure investment in precious metals than this. That being said they are a bit more challenging to liquidate, and storage can be a pain in the ass.
Why would someone invest in precious metals? There are many reasons people add precious metals to their portfolios. These reasons include:
Holding the shiny is cool!: If you invest in bullion, and store it on your own, you get to hold it in your grubby little hands! There really is a feeling you get when you physically hold an investment. I enjoy looking through the different bars and coins that exist, there's some really awesome stuff out there!
SHTF (shit hit the fan) protection: Precious metals are stores of value. This makes them a hedge against the end of the financial world as we know it and we are stuck with the barter system for commerce. Even though the odds of this happening in ridiculously small (but not zero), many precious metal investors use this as a driver for making an investment.
Portfolio diversification: The prices for precious metals do not move along the same curves as the prices for other assets. This helps to offset portfolio losses at times, but can also holdback overall portfolio gains at others. That's the nature of diversification.
Liquidity: Precious metals in bullion form are not as liquid as stocks, but they are much more liquid than real estate. If you want to turn your metal into cash you can either sell it to one of the many online precious metal companies, or head to your local coin shop and sell it there.
What is the breakdown of my precious metal investments? I personally do not have a lot of my portfolio in precious metals, only 3% currently. Here are the details:
All of these are in bullion. The bullion split is fairly even between coins and bars. Of note is a large portion of my silver investment is in old US coins (coins minted up to 1964 are 90% silver - so check your coin jars!).
Most of my purchases have been made online through APMEX (I'm not affiliated with them in any way), or at my local coin shop. I have purchased some old US coins on ebay as well, but deals there can be hard to find.
Should those striving for FIRE invest in precious metals? The short answer is no. There are many ways to earn greater returns on your investments than putting money into precious metals. If your goal is the shortest path between where you are today and when you are financially independent, precious metals will most assuredly not get you there.
However, if you are looking for a counter balance in your portfolio to hedge against investments in other asset classes, putting aside a little bit into precious metals may be the right move.
Having a bit of my portfolio invested in precious metals helps me mentally make other investment decisions (investing in real estate, stocks, music royalties). Something about that pile of metal helps me push through my comfort zone at times to make the investments I need to make in order to achieve my financial goals.
Closing I’m in no way trying to convince anyone to add precious metal to their portfolios. There’s a lot of strong positions around precious metal investing. You have some like Dave Ramsey who say don’t do it. You have others like Mike Maloney who say do it. There’s passionate groups dedicated to this type of investing all over the place (looking at you Silverbugs!).
As for me, I like the mental security I feel by having a bit of my money invested in precious metals. I’ll probably always have 3-5% of my portfolio allocated to it. Most likely these will never be used, and will eventually be split across my children as inheritance in the future.
Also it's a really fun hobby, so there's that!
It's important to remember "personal finance is personal", and I think that is gold!
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