How Much of Your Portfolio Should Be in Precious Metals?


by Grant HEnson

*The owners of this website may be paid to recommend some precious metals companies. The content on this website, including any positive reviews of these companies and other reviews, may not be neutral or independent.

We are as big of a proponent for precious metal investments as you’ll ever come across online. After all, precious metals are pretty much a surefire way to stabilize your portfolio and protect it against the ever-looming threat of inflation.

That said, no matter how much we appreciate the benefits these precious metals provide, we do not recommend filling the entirety of your portfolio with them. There needs to be a balance and equilibrium alongside other investment assets — like stocks or cryptocurrencies — to minimize risk and maximize profit potential.

Keep reading to learn what that balance looks like.

The Role of Precious Metals in an Investment Portfolio

Before we dive deeper into the specifics of precious metal investments, let’s address the elephant in the room. Why are these metals considered good investments in the first place? In our experience, there are two key factors backing this sentiment:

Historical perspective

Saying that precious metals have been used as a symbol of wealth for a long time would be an understatement. Gold, in particular, has a history in wealth preservation that goes back thousands of years. The first gold coins were minted nearly 2600 years ago, and gold continues to have intrinsic value today.

In other words, humans have associated gold, silver, and other precious metals with wealth and value for millennia. The good news is that this association is just as strong today as it ever was — giving precious metals a level of trust few other assets have.

Unique properties

Unlike the vast majority of modern investment options, precious metals are tangible assets that you can hold in your hand — giving them a sense of real-world value. Plus, precious metals like platinum and silver also have industrial uses which gives them an intrinsic value.

Benefits of Including Precious Metals in Your Portfolio

The factors we listed above make precious metals valuable. But why should you invest in gold or silver, instead of BTC or TSLA? For us, the answer to this depends on the following benefits of precious metals:

Hedge against inflation

Taking a look at the price history of precious metals shows us that their value increases as inflation devalues currencies. This is why metals like gold and silver are called safe haven assets. They keep the core value of your investments stable no matter how harsh inflation becomes.

Protection from economic crises

Inflation is one thing, but these precious metals can also protect your investment from unforeseen recessions and economic crises. We saw a great example of this just a few years ago with the COVID-19 pandemic.

When lockdowns sent the global economy tumbling downward, precious metals not only held their value but actually increased in price.

Diversification and risk reduction

We also recommend precious metals as a way to diversify your portfolio. You can split your investments between highly volatile assets like crypto (to increase your chances of profit) and precious metals (to avail their stability and reduce the risk of losing your savings).

Factors to Consider When Allocating Investment to Precious Metals

Now that you have a better understanding of the role precious metals can play in a portfolio, you might be tempted to invest as soon as possible. But before you make any purchases, here are a few crucial factors that we suggest you to consider:

Financial goals and investment horizon

What are your goals and aspirations from your portfolio? If you’re looking for quick profits, precious metals aren’t the best option. From what we’ve seen over the years, precious metals do not experience the type of explosive growth displayed by assets like stocks and cryptocurrencies.

On the other hand, if you’re more focused on wealth preservation, investing a larger portion of your portfolio into these metals makes the most sense.

Current economic climate and market trends

Consider the investment market as a whole. For example, if the crypto market is showing signs of growth, we’d suggest investing more money into the most promising tokens. But, if the market as a whole is going down, owning a larger chunk of precious metals can provide protection for your hard-earned money.

Risk tolerance

On the plus side, precious metals like gold and silver aren’t very prone to eroding over time. But, they are physical assets that you have to store in a secure location or you can lose them to theft or robbery.

Recommended Portfolio Allocations to Precious Metals

As we just discussed, the recommended portfolio allocations to precious metals can and should vary between investors based on factors like their financial goals and current market situation.

That said, while there is no universally correct amount, we generally advise investors that 5-15% of their portfolio should be dedicated to precious metals. Most other finance experts agree on this range as well as it provides the ideal middle ground for the vast majority of investors.

The reason we say that it should be between 5% and 15% is because investing in less than 5% will greatly reduce the stability benefits of these metals. Alternatively, investing above 15% can reduce the growth potential of your portfolio and impact your profits in the long run.

Different strategies

While the 5-15% is our optimal recommendation, it is not a steadfast rule.

For instance, if you’re looking to maximize profits and accept higher risk, you can invest the majority of your money into a volatile asset like crypto.

On the other hand, if you’re only concerned about safeguarding wealth with something like a gold IRA, you can allocate 50% of your portfolio to precious metals without any issues.

Managing and Adjusting Your Precious Metals Investment

The best advice that we can give you in this regard is to stay flexible. Do not choose an arbitrary percentage and stick to it no matter what.

Instead, analyze the market conditions regularly, factor in your personal financial situation, and adjust the amount of precious metals in your portfolio accordingly. We also suggest treating each precious metal (gold, silver, platinum, etc) as an individual asset and managing its ratio accordingly.

Luckily, precious metals are some of the easiest assets to purchase and liquidate, so this constant movement shouldn’t be much of an issue.

Conclusion

To summarize, precious metals should make up between 5% and 15% of your total investment portfolio. But, this range is completely flexible based on market conditions.

Just make sure that your portfolio is balanced and fulfills your personal financial goals. We also recommend talking to a financial adviser for more personalized advice. To get started with investing in precious metals, you may want to see our article on the best precious metal companies in 2024.

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