Investors have many options available to them for investing in diversified asset classes—and indeed, most financial advisors will recommend a portfolio that’s strengthened and broadened with investments beyond traditional stocks and bonds. With that said, investors must exercise prudence and caution when considering so-called “alternative” investments, which often have many potential benefits but also potential drawbacks. Knowledge is key, not least when precious metals are in view.
The most important thing to know about precious metals: They are well-suited for some portfolios, but not for all, and before you invest in them it is essential to check with your financial advisor, discuss long-term strategy, and weigh the pros and cons.
Three Types of Metal Investment
Beyond that, there are three things every investor should know about the world of metals. Start here: For the purposes of investment, all metals can be divided into basically three categories:
Base metals are abundant and easily available, and as such prices are generally quite low. These include metals with widespread industrial and commercial use, like copper, zinc, and iron.
Precious metals are scarcer and thus typically have higher valuations; these are the metals used in jewelry, but also in electronics and industrial equipment. Gold and silver are the best-known, but platinum and palladium also count.
Rare earth metals are either scarce or simply difficult to extract, and as such may have the highest valuations of all. Lanthanum and cerium are just two examples.
Different Ways to Invest
Something else to be aware of: There are multiple ways to add metals to your portfolio. Again, you will want to speak with an advisor to determine which method, if any, is right for you.
You can simply buy physical metal, though this will also require investment in a safe and secure storage space.
You can invest in a metal-specific ETF, which may invest in one metal or in an array of metals.
You can invest in a metal-sector-specific mutual fund.
You can invest in the stock of a metal company.
You can invest in metal commodity futures.
Potential Benefits of Metal Investments
Again we will note that metal investment is not for everyone, but there are several good reasons to consider it:
Diversification is one reason; metals are a totally separate asset class from traditional equities, bonds, and currency, and their valuation is driven mostly by supply and demand.
They hedge against inflation, too; it is generally thought that precious metal prices rise in sync with inflation.
Metal investment is also perceived as a good protection against economic downfall, though this is obviously an extreme consideration.
In the interest of fairness and full disclosure, it should also be noted that precious metals have their downsides. Like all investment classes, metals come with risks—including some high volatility and a relative lack of liquidity. Caution, as ever, is recommended.
Nevertheless, investing in precious metals is well worth discussing with your advisor—so don’t hesitate to contact the Stonepath Wealth Management team today to schedule a consultation.
