Saturday 15 December 2007

Investing in Precious Metals

Bullion investments tend to fall into the "other" category of most people's investment portfolio asset mix. The main components are generally stocks, bonds, property and cash. However, a case can be made for having a modest investment in gold or silver. Personally I have some silver coins, some gold coins and a couple of ounces of gold bullion. The main reason for investing in bullion are:
* as an inflation hedge (precious metals tend to go up in price when inflation takes off)
* in case of major disaster. Although diamonds are better as physical stores of large amounts of wealth, only experts are in a position to accurately value them. So in a disaster situation you're much more likely to be able to barter silver or gold coins for necessities.
* to reduce the overall risk of your portfolio. Due to the low correlation with other asset classes, including a small amount of bullion in your overall asset allocation can significantly reduce the overall risk (volatility) of your portfolio without reducing performance too much.

On the downside, investments in bullion:
* don't provide any income
* have storage costs (either home security or paying a fee for an entitlement to physical bullion held elsewhere (which loses the benefit of owning bullion in a disaster)
* capital gains are largely speculative

If you're interested in investing in gold bullion, one way is to invest via BullionVault. BullionVault gold is stored in security vaults, so the gold you buy doesn't move making it safe, secure, cheap and easy to trade online. Client holdings are reconciled every day and published online using anonymous aliases to show who owns the gold stored by BullionVault.

While some people may be tempted to invest in gold to protect their wealth from possible bank panics due to the credit-crunch, I invested in gold when it was less than half it's current price. Gold has doubled in value over the past 5 years to $800/oz (you can check out gold charts at BullionVault), so the big question is whether gold prices will fall back or continue to climb.

Copyright Enough Wealth 2007

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