5 Reasons to Add Precious Metals to Your Investment Portfolio
In a world of rising geopolitical tension and economic uncertainty, diversifying one’s portfolio is a key way that investors can mitigate the effect of market volatility. A traditional investment portfolio consists of a certain balance between stocks and bonds, while precious metals are often overlooked. Increasing precious metals holdings can offer a variety of benefits to an investor, most notably a hedging ability, growth, and stability. This blog will take a look at the main reasons why investors should add precious metals to a portfolio.
An Effective Hedging Tool:
This remains to be one of the primary reasons investors add precious metals to a portfolio. Historically, gold and silver have acted as a hedge against inflation. This means that in times of high and sticky inflation, investors will turn to gold as the purchasing power of their fiat currency is affected. Fiat currency i.e. dollars, euros, etc. can fluctuate in value depending on economic factors at any given time. Conversely, gold and silver have historically held their value through time.
Precious metals have experienced steady, long-term growth through their historical timeline. Past performance has provided a good indication as to how investors have valued these metals over time. While past performance is not indicative of the future trajectory of gold and silver, both have a history of long-term growth over an extended amount of time. Thus, both metals have shown an ability to generate substantial returns for investors over the long-run. Including precious metals in an investment portfolio can allow investors to take advantage of the potential growth of gold and silver.
Tangibility and Liquidity:
Purchasing gold and silver allows investors to have physical possession of their investment. This is something that is unique to precious metals. The tangibility of these products is appealing to investors as it offers a sense of reliability that cannot be experienced with stocks and bonds. Precious metals also have a long-standing globally recognised marketplace in which the products within can be traded freely. This ensures liquidity, meaning investors who purchase gold and silver can easily offload the metals when they see fit. This means that including precious metals in an investment portfolio adds a reliable and accessible source of liquidity.
Precious metals are widely recognised as safe-haven assets. During times of economic uncertainty, investors seek safe-haven assets that can act as a store of value, with the most popular of these being gold. The rationale behind gold being the primary safe-haven asset, is the yellow metals inability to become worthless. This is not the same for fiat currencies or other assets that bear credit risk.
The final advantage of having precious metals included in an investment portfolio is the potential that they have to enhance the stability of a portfolio. Precious metals, more specifically gold and silver, have a low correlation to traditional asset classes such as stocks and bonds. To provide an example, the price of gold tends to rise during times of economic uncertainty, at which time equity markets tend to fall. Having asset classes that move opposite to one another allows for greater stability within a portfolio.
A well-rounded investment portfolio is one in which the investor is not severely impacted by the rise and fall of different asset classes. Including precious metals in your investment is a reputable way in diversifying a portfolio as such. Merrion Gold offers investors a unique way to add precious metals to an investment portfolio by selling a range of physical gold, silver, platinum, and palladium products.