There are a lot of options for you when it comes to investing, like stocks and bonds. So why would you even consider investing in gold and silver? Are they not too risky, especially for beginners in the market, and even for those who are already been trading for quite some time? You can bring down the risk level as long as you have some ideas about proper asset allocation of gold and silver.
Studies have shown that an allocation of an investment portfolio can protect against inflation, hedge against a market downturn, and increase overall performance over the long run. But what is the right mix in your portfolio?
Portfolio experts advise having an asset allocation of anywhere between 5% and 25% in precious metals. Your asset allocation in gold and silver depends greatly on your individual needs, risk profile, and also to a large degree upon the other investments in your portfolio. For example if most of your assets are already real estate, oil trusts, or other commodities, your are also hedged against inflation and may not need a large portion of your money allocated towards gold or silver. On the other hand, if you have no commodities exposure, and hold long term bonds, it may be best to allocate a significant portion towards precious metals.
An allocation of precious metals may be broken down further into equities, such as gold and silver miners, and bullion. From there, advisors also suggest breaking down the allocation between gold and silver. Larger investors may also acquire platinum, but the core holdings should be gold and also silver.
Now, is it better to invest in gold, or in silver? While both are good choices, a half and half plan is not necessarily the ideal way to build your portfolio. Gold is much less volatile than silver, investors looking for liquidity in something that they can sell quickly may want to start with gold. However, silver has more upside potential over the long run and will likely benefit more from an economic recovery due to its industrial uses. For this reason, investors looking for a return on capital may want to allocate a larger proportion towards silver.
During a bull market in precious metals, it is better to invest more on silver; perhaps ten percent of your portfolio is silver and five percent in gold. This is because silver rises faster as compared to gold.