According to a 2019 survey by the Gold IRA Guide, approximately 10.8% of US citizens own gold, while 11.6% own silver. This equates to about 35-38 million people who have invested in these precious metals, and it is easy to see why.
Both gold and silver are a very practical hedge against inflation and have shown great resilience against periods of economic downturn. Buying either of these can help you secure a relatively stable investment for your portfolio that will retain its value for years to come.
The big question, however, is just how much gold or silver you should own. Let’s compare and analyze the historic price trends of these metals to find out.
The Role of Precious Metals in a Portfolio
Precious metals like gold and silver are an undeniably essential part of an investment portfolio and here’s why:
Value storage
We touched on this briefly in the intro, but both gold and silver are exceptional at retaining their value.
Consider the 2008 economic crisis, for example. While all other assets like real estate and stocks were in a freefall, both gold and silver actually appreciated in value. An even more recent example would be the COVID-19 pandemic which put a halt on the global economy. Yet, gold and silver still managed to hold their value remarkably.
Diversification
You shouldn’t put all your eggs in one basket. This is why gold and silver are very practical options for portfolio diversification.
Market sentiment
Due to their near-flawless history, the value of these precious metals has been deeply ingrained in the collective consciousness. This reputation protects gold and silver from economic troubles that can spell disaster for other investments like stocks and land.
Factors to Consider
Most investors and investment experts agree that gold and silver are sensible investments. But what portion of your portfolio should comprise these precious metals? Here are a few considerations that can help you determine the right amount for your portfolio:
Financial goals
Are you investing in gold or silver for your retirement fund? Or, are you looking to make a short-term profit by taking advantage of market movement?
For long-term investment, even a smaller amount of gold or silver will add a layer of stability to your portfolio. On the other hand, you might have to invest in a large amount of these metals to maximize your profit margins.
Risk tolerance
While gold and silver are fairly stable, they are not completely risk-free — no investment really is. So, consider the historic volatility of these metals and purchase an amount that is within the bounds of your risk tolerance.
Market conditions
If a recent event boosted the price of gold and silver, it’s best to invest as little as possible. Be patient and wait for their prices to return to normal to avoid unnecessary losses.
Gold vs. Silver: A Comparative Analysis
As mentioned above, while gold and silver are relatively stable, neither is completely free from the volatility of the economy at large. Comparing the prices of these metals over the past 100 years highlights a number of similarities between the two. For example:
Abolishment of gold standard in 1971
After President Nixon ended the gold standard for the US dollar in 1971, the price of gold went up significantly. This is because gold was a completely separate asset now, free from the shackles of the dollar.
However, the abolishment of the gold standard sparked a fear of currency devaluation among the general populace. A significant number of investors decided to store their wealth in precious metals, including silver — boosting its value as well.
2008 economic crisis
Following the economic crisis, investors lost trust in real estate and the stock market and many turned their sights towards precious metals. This led to a similar value increase for both gold and silver.
What this means
Comparing the price history of gold and silver demonstrates that these two metals are linked in the eyes of investors. An increase in the value of one is often followed by a similar boon for the other.
Diversification Benefits
The important thing to understand here is that gold and silver are not mutually exclusive. You can invest in both at the same time, which is actually highly recommended as it can improve the stability of your portfolio. Here’s how:
Reduced risk
Having your assets spread across two different metals spreads the potential risk as well. If you’re all-in on gold, any disturbance in gold’s value will rock your portfolio. But, adding silver to the mix negates such worries.
Varied market influences
While there is a lot of correlation between gold and silver, they are ultimately two different assets that respond to different driving factors. For example, silver has significant industrial applications, which can contribute to its demand independently of its role as a store of value.
How Much Gold to Own
Most experts agree that you should invest at most 10% of your total portfolio into precious metals. Within this range, we recommend giving gold the larger cut as its value has little to do with any industrial factors.
As for exactly how much gold you should purchase, that depends on factors such as:
How Much Silver to Own
About 50% of silver produced today is used in industrial applications. On the one hand, this introduces a risk for silver that is not present for gold. However, this also adds a potential for price appreciation as demand for its industrial uses (like solar panels) increases over time.
So, if you’re willing to accept the potential risk then purchasing more silver than gold is just as valid as preferring gold over silver.
Storing and Safeguarding Precious Metals
If you want to purchase physical precious metals, here are a few ways to store them safely:
Whichever method you choose, we also recommend getting insurance to safeguard your assets against theft and robbery.
Conclusion
Both gold and silver are stable investments that can add some much-needed diversity to your portfolio. Both have also shown similar resilience against inflation and economic downturns.
That said, if you want to purchase either of these metals, we highly suggest getting professional investment advice before making any decisions. You may also want to add them to a gold IRA or precious metals IRA in order to boost your retirement fund.