Market Beat: Investing in precious metals
One of the best ways to manage risk in an investment portfolio is through diversification. In other words, “Don’t put all your eggs into one basket.”
If you drop the basket all the eggs could break.
If you look at university endowment models, they include an allocation to natural resources. The percentage allocated to natural resources depends on your overall risk tolerance.
Investing in gold has been very popular for a long time. Precious metals like gold are part of the natural resources allocation.
Gold can be a good inflation hedge and portfolio diversifier. The price of gold can also be highly cyclical with very long term trends in price.
Gold topped out in August of 2011 and hasn’t approached those highs since.
In general, it’s best to buy when it’s down from its highs and hold for the long haul. Since gold is a physical commodity the supply is limited.
There are several ways to invest in gold. You can purchase gold coins and store them yourself.
In addition to the gold value, coins also have additional collector value.
Exchange traded funds or ETFs also provide a good way to have gold and other precious metals in your portfolio. There are ETFs that represent gold and silver and some of them are backed by the physical asset. They are very liquid and some of them have liquid options contracts which can allow for the use of common strategies like the covered call and cash secured put writing.
Of course, options are not suitable for all investors.
Gold mining stocks should be part of a well diversified portfolio. If you use broad based index funds as part of your strategy you will have exposure to mining stocks.
The Metals and Mining Industry has performed quite well in the most recent earnings reports.
Exchange traded funds can also be used to invest in the Metals and Mining Industry if you don’t want exposure to individual stocks.
There’s an ETF that represents the major gold mining companies in the world and another one that consists of the small cap junior gold miners. The ETFs are a good way to get exposure to the entire industry.
Gold has been very important to California and Nevada.
The gold rush led to the formation of both states and today Nevada is the third largest gold producer in the world.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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