The Savvy Guide to Investing in Precious Metals
There's no doubt that investing in precious metals continues to be a popular form of diversifying your investment resources. It sounds like it makes sense when you first hear about it. After all, you don't want to ignore a lucrative investment, and you don't want all your proverbial eggs in the same basket.
But then, the inevitable questions arise.
With that said, what are the benefits of investing in precious metals? Are there risks involved? Or are precious metals a good investment at all?
Are precious metals a good investment?
For starters, let’s get the obvious question out of the way.
Well, it depends.
Precious metals are a viable investment option for anyone willing to take the risk of potentially earning or possibly losing too. Like any investment, whether or not it's a good investment depends on a variety of factors. And often times, these factors are a combination of both your financial and investing IQ as well as market forces (you know.. those things beyond our control). No matter how smart anyone is.. no one controls the markets and no one knows the future of the markets either).
So, as long as you acknowledge that there are forces beyond your control in investment markets, metal investing is certainly an alternative among many. However, one thing is for sure when it comes to investing in precious metals: there’s potential for a lot of benefits with the risk of losing out too.
One of the foundational rules is to always remember that when you invest, should you choose to do so.. there is always the potential to lose the money that you invest so never ever invest more than you are willing to lose.
The Risks and Benefits of Investing in Precious Metals
Here’s a quick look at what advantages you get from precious metal investing and the risks you face.
Benefits of Investing in Precious Metals
- The first and obvious advantage investors have with precious metals is the constant demand. Whether it’s in jewelry or your car’s catalytic converter, metals like Gold and platinum will likely have a market for the foreseeable future.
- Any good investment strategy recommends diversifying your resources. And precious metals offer a unique alternative to shares, stocks, and other conventional trading assets.
- Another widely touted benefit of metals is liquidity. This, of course, assumes that you have the metal bought in hand. Most markets have mechanisms for converting or selling precious metals for cash, which makes it an incredibly liquid asset.
- Precious metals are also a store of value that's free from cyber threats and hacking if you hold it in physical form. The physical form may also count as a convenience because even a small amount is theoretically worth a lot of money.
Drawbacks and Risks of Investing in Precious Metals
The benefits can also easily turn into risks if the markets grow to your disadvantage.
- A clear drawback when investing in precious metals is that commissions and fees are usually higher than traditional stocks.
- If held in physical form, safe storage and security are always ongoing risks you have to bear. Using deposit boxes or professional security measures imply additional costs.
- If held as an asset, your precious metal investment comes with the same market risks as any other investment, stocks or otherwise.
- The interest-earning potential for precious metals is generally not as lucrative as wise investment in traditional stocks. But this can vary depending on market behavior and investor’s response.
What’s the best precious metal to invest in?
For the uninitiated, the answer to the question, ‘What is the best metal to invest in right now?’ would be an easy answer – Gold. But if you’re even vaguely familiar with precious metal investing, you know that’s not always the case.
Silver, Platinum, or even Palladium can be good investments if the time and context are right. Choosing the right metal to invest in depends on knowing each asset well.
Silver is predominantly valued for its industrial applications. So, its value will also fluctuate depending on contemporary technology and trending industrial practices.
Platinum scores high on industrial use because of a wide variety of applications ranging from automobiles to dentistry. But its limited sourcing (mostly from Russia and South Africa) and high industrial use make it a very volatile choice too.
Palladium is lesser-known but equally useful in chemical applications and manufacturing.
How to Invest in Precious Metals
There are several alternatives available when it comes to investing in precious metals. Here are the major ones.
ETFs (Commodity Exchange Traded Funds)
ETFs allow you to invest in precious metals without physically owning the metals. It's convenient and easy to learn. Plus, you get access to all the three options that contend as the best precious metal to invest in right now – Gold, silver, and platinum.
Mutual funds and common stocks
With this option, you’ll invest in portfolios that primarily deal with mining stocks. The funds are usually spread across different metals but usually focused on gold mining stocks. This one may not be the best option for beginners.
A more old-fashioned way of investing in metals is actually purchasing and holding physical pieces of the metal. While some people consider it easy liquidity, others see it as a storage hassle and security risk.
The metals market for futures and options offers the maximum earning potential and the biggest risks for investors. As with any derivative products, you should invest only after informed consultations and careful consideration.
Finally, investing in certificates allow you to have the benefit of holding precious metal without the trouble of physical storage. However, liquidity is not as fast or easy as some other options here.
Many investors believe that picking the right platform or combination of platforms is the key element on how to invest in metals. So, you'll have to get a good grasp of each medium and metal before you start spending real money on possible returns.
Investing in precious metals comes with its unique challenges and benefits. Like any industry, you must navigate the risks and drawbacks to increase your chances of getting better returns. As you learn more about how to invest in metals and the different factors that affect your prospects, you’ll be able to make better decisions for any precious metal investment.
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