Author: Izabela Szkaradek
Publication date: 29.11.2023
Pros of investing in precious metals
Precious metals are seen as a stable asset. Below there are 5 most important advantages of them.
One of the key benefits of investing in precious metals is diversification. By adding precious metals to your investment portfolio, you can spread your risk across different asset classes. Additionally, you can potentially reduce your overall investment risk.
2. Hedge Against Inflation
Investing in precious metals serves as a hedge against inflation, with prices often rising at or above the inflation rate. These tangible assets have intrinsic value beyond investment, encompassing uses in jewelry and various industries. Moreover, precious metals offer liquidity, allowing quick conversion to cash, especially with investment products.
3. Tangible Assets
The accessibility of metals makes them an easy purchase for investors. They are facilitated by abundant resources guiding the acquisition of silver, gold, etc. There are diverse options for incorporating precious metals into a portfolio. These include physical investments like silver coins or gold bars, engaging in mining stocks, or trading futures.
4. Low entry price
The low barrier to entry in precious metal investments accommodates first-time or novice investors with limited funds. Initiatives can range from purchasing a few stocks to opening a small IRA or platinum jewelry. So, it provides an inclusive entry point for investors.
Stability characterizes precious metals, with gold, silver, palladium, and platinum. They are enjoying growing demand due to their physical nature and finite supply. While they are not foolproof for positive returns, their long-term stability is due to their diverse applications.
Cons of investing in Precious Metals
Precious metals are often considered a safe investment, but they have their downsides. There are 5 main cons of them.
1. Opportunity Cost
One of the main drawbacks of investing in precious metals is the opportunity cost. This is because of the substantial inverse correlation between gold and real interest rates. Consequently, choosing to invest in gold during phases of elevated real interest rates might not be a good idea. It would mean missing out on potentially superior returns from other asset classes.
Another disadvantage is that their prices can drop or stagnate. For instance, the price of gold has historically trended upward. Meanwhile, it has had ups, downs and has been more volatile over the past decade.
3. Storage and Security
Investing in precious metals can be challenging due to the need for proper storage and security. Storing precious metals at home can be risky. However, storing them in a bank safety deposit box can be expensive.
This can be a significant disadvantage for investors who need to access their funds quickly. Precious metals aren’t as liquid as other assets, for example stocks and bonds. Also, it can take time to find a buyer and complete the sale.
5. Limited Income Potential
Investing in precious metals may not be suitable for investors who seek regular income from their investments. Furthermore, they do not generate income or dividends unlike stocks, bonds, or real estate.