Investing money in precious metals can be a great way for investors to diversify their portfolios and protect against risk. Because the price of these metals—gold, silver, platinum, and palladium—varies due to factors largely separate from those driving the stock market up or down, having some stock in these materials can effectively guard against inflation and troubling economic times.
Each investor has differing levels of risk aversion or tolerance, and there are five main ways to invest in precious metals that allow each investor to find an appropriate balance of risk and yield.
1. Bullion and Coins
The main method for investing in precious metals is through the purchase of bullion or coins. This means owning the physical product, the safest way of guaranteeing your investment in any economic situation.
Bullion is the metal in its most raw form, and bars of the metals are available in different sizes and quantities. For those looking for especially safe investments, bullion can be the best option. Of course, they can also be somewhat difficult to liquidate in the short term, and they can be cumbersome to store and transport. Coins also carry numismatic value, as their status as collectibles has an effect on their overall value.
The derivative of owning the precious metal is to purchase certificates of ownership. Those investing in precious metals who would like to avoid the hassle of handling the metal can effectively own the materials without ever coming in contact with them. That means having similar investment risk and yield possibilities without transportation, storage, or assay problems. Of course, those trying to prepare for the worst should probably avoid certificates, as they are ultimately just paper. For other investors, certificates can be a good option.
3. Mutual Funds
Exchange traded funds come in a variety of structures, and people investing in precious metals can buy into mutual funds carrying practically any amount of risk and yield potential. Mutual funds can include single or multiple precious metals, or they can include all types of commodities. These funds are a good option for those looking to get involved in the precious metal market without having to manipulate raw quantities of the materials.
4. Mining Stocks
Holding stock in a mining company is an indirect way of investing in precious metals. When the prices of precious metals rise, the stocks of these companies tend to rise with them. Many mutual funds include stocks in various mining companies (in addition to bullion and other forms of the investment). Direct investment in these companies should be based on knowledge of the overall market for the relevant metals, as fluctuations can lead to greater risk.
You can also get involved in precious metals investment by buying futures on gold, silver, and platinum. Futures speculation tends to have an effect on present prices of precious metals, and investors can make profits if they are able to properly weigh the conditions of the market for each metal. This is essentially a contract wherein a person agrees to pay a set price for the metal at a later date, regardless of the price at that time.
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