The debate about how much a person should invest in gold, silver, or other precious metals has been active for decades. There are people who don’t consider gold a good investment, while on the other hand, precious metal enthusiasts consider gold the ultimate insurance policy. You probably have heard strong arguments from both sides.
One of the most prominent voices against investing in gold is not someone you can ignore. Warren Buffet has held the opinion that investing in gold is just plain ‘stupid.’ Investment gurus like Buffet think investing in precious metals means buying something while paying for its storage and other expenses in the hopes that it appreciates.
This seems like a valid point when we take things from this perspective. However, for gold lovers, a return isn’t the only reason to invest in the yellow metal, and factors like insurance against uncertainty are a must-have in your portfolio. Now that approach is also completely understandable.
To put this contradictory situation into a decision making perspective, we have some advantages and disadvantages of investing in gold and silver, so that you can make sure about what to do.
Advantages of investing in Gold and Silver
It is argued that the precious metals act as a hedge against inflation. Inflation is the rate at which prices rise. Rising prices can erode your savings, and you struggle to maintain your financial status due to this. Precious metals ensure that the money invested in those metals stays intact or appreciates.
Precious metals are not like your other investments in stocks. They bring diversity to your portfolio when you invest in them.
Gold and silver have a long history of acceptance as stores of value. For centuries, people have used gold and silver to store their wealth.
When you invest in stocks and bonds, there is an added risk of the untrustworthiness of other parties. In the case of gold and silver, that trustworthiness is a solid trust due to acceptance worldwide.
When you invest in currencies, and the value of those currencies depreciates, gold can come to your rescue. In most cases, the effect of currency depreciation is neutralized by an increase in the value of gold against the currency in question.
All the precious metals are limited by available supply, and central banks cannot produce them as they can with currency. Precious metals are limited in our world, and that is one reason why the prices of these will increase with time against fiat money.
Disadvantages of Investing in Gold and Silver:
One of the most important disadvantages of precious metals is that buying them isn’t always easy.
Storing of precious metals you own is another issue that brings many expenses like insurance, storage facility, etc.
When you invest in gold and silver, the income you earn is based on an increase in the value of those metals.
Physical precious metals cannot be purchased on margin like stocks, leaving some investors feeling that their cash is somewhat limited by purchasing precious metals. Precious metals are affected by markets and can have moderate to high volatility. In uncertain circumstances, precious metals show significant price volatility.
There you have it, a brief pros and cons comparison of precious metals.
In our opinion, the decision about how much to invest in gold and silver is just a matter of personal preference. It all depends upon your risk tolerance, savings, views on the economy, etc.
Although you have to make the final decision yourself about how much to invest in gold and silver, all investment experts agree that the percentage of money invested in gold and silver should not be less than 2% and not more than 20%. It allows you to have enough liquidity for other investments as well as a safe investment in precious metals for long term security.