Recent years have brought gold, silver, and other precious metals into the spotlight as popular alternative investments. These metals brand themselves as an easy path to big returns and protection against a potential future struggling economy.
In this month’s post, we take a look at these metals as an investment and discuss whether they should be in your retirement portfolio.
Gold and silver as an investment
Gold, silver, and all precious metals are a legitimate, and popular, form of investment. In the last decade, spot prices have even reached an all-time high!
This is largely due to their reputation as an effective hedge against the US dollar and the economy as a whole. Politicians like Ron Paul and many investment firms have backed up this sentiment and in many ways propped up the notion of gold as a great investment for everybody.
These are excellent and true points — gold is a hedge against a failing economy and a nice alternative as part of a larger investment strategy. But does this make it a good part of a retirement investment strategy?
What forms of gold and silver investments exist?
Generally, gold and silver investments center around a couple of different types of assets. These include gold and silver…
- Bullion or coins
- Jewelry or collectibles
- Equities (or stocks) of producing mining companies or lower scale gold and silver mine exploration companies
- Gold-focused ETFs
The composition of a good retirement portfolio?
Ideally, your retirement portfolio should be centered around low-risk assets with some alternative assets in the margins to provide some level of upside — typically some combination of…
- Exchange-traded funds, or ETFs
- Alternative assets
This portfolio diversity allows you to be exposed to the general economy with as little risk as possible. This is the ultimate long-term investment. You put money into this account incrementally, don’t worry about the short-term fluctuations in the economy, and at the end of the day, your portfolio will be much larger.
If you’ve invested too much in gold, you’re opening yourself up too much to one asset and are at risk of losing a significant portion of your retirement savings.
What affects the price of gold and silver?
While lots of factors go into the overall price of silver and gold, the price of the raw material is generally affected by the same thing that affects most things: supply and demand!
With gold and silver, supply means two things: mining and recycled stock. Unlike many things in our world, you cannot simply just “make” more gold or silver. They are finite resources that require many hours, capital, and hard work to find, produce, and process.
In fact, did you know that by some estimates all the gold that’s been mined in the world would only equal a cube 67 feet high!
While gold producing companies are getting better and better at finding and processing gold, it still is a trickle and not a flood. This has kept gold prices high and gold and silver good investments in the right situation.
Demand is the trickier piece of the puzzle for gold and silver. While everyone mostly knows gold and silver for the functional application in jewelry and other items, it’s also valuable for industrial and historical reasons.
There are two different types of demand when it comes to gold and silver: investment and functional demand.
Gold was for a long time used as the backing for American currency. In the 1970s, the gold-backed currency era was deemed over by President Richard Nixon, and US currency was no longer correlated to US gold stocks. This shift has given gold the reputation as a hedge against the US dollar, and given rise to significant investment demand on gold, despite a relatively flat functional demand increase for gold.
This investment demand has made the price of gold skyrocket to historic levels.
Gold and silver as part of a retirement investment strategy
As stated above, gold and silver can be an excellent investment. Consider…
- The price has skyrocketed in the last two decades
- The investment demand is not going anywhere
- There are functional uses for gold and silver
- It is a finite resource that is still hard to extract
Plus, on top of all that it protects you in the event of a major economic collapse. So what’s not to love about silver and gold in your retirement portfolio?
Simply put, while gold and silver can be a great investment, making it a large portion of your retirement portfolio puts your future at risk.
A retirement portfolio with too much gold or silver risks shrinking greatly overnight! What if the economy flourishes and the price of gold and silver drop 20%? That could shrink your portfolio significantly to the point you have lost a lot of the money you’ll be counting on for your golden years.
How to best leverage the power of gold and silver in a portfolio
This does not mean that gold and silver can’t be a great piece of your portfolio. The trick is exposing yourself just enough so that you’re hedging against a major economic meltdown while not overexposing as to be hurt if the price of gold plummets.
So what should you do?
For hedging purposes, we recommend placing any money you’d like to invest in gold into gold ETFs. These ETFs will blend a mixture of bullion, early stage mining companies, and producing gold and silver companies that will give you the upside of all different aspects of gold and silver as an investment.
What should you not do?
Do not hold onto your gold or silver jewelry thinking that it will provide you with the long-term investment that investment-grade gold assets could. While holding onto gold or silver jewelry for sentimental reasons is reasonable, if you’re holding onto these items for investment reasons we recommend diverting this money into an investment-grade gold asset.
Sell your gold to Samuelson’s Buyers
If your looking to place a bet on gold, do it the right way. You can get real value for your gold and silver, giving you value for your jewelry and their artistry now while giving you the capital to invest in gold and silver properly.
Samuelson’s Buyers is proud to be Baltimore’s #1 gold and silver buying destination. We’re family owned and operated and would love to meet to discuss your options. We’ll make sure to fll you in on the entire process and make sure you feel completely comfortable with
Contact us online or give us a call (301) 718-4825 to learn more about how to sell your gold and silver valuables today.
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