The finance crowd developed its own meme, “cash is trash,” as the US dollar loses purchasing power, and interest accrued in savings returns mere change.
In fact, the argument for opening a bank savings is making less sense as interest on many accounts are returning a mere 0.25 percent. That translates to $2.50 for every $1000 in savings each year.
Further, trust in banks has been declining over the past decade following one scandal after another and multiple failures which wreaked havoc on the US banking industry. In 2023 a series of bank runs caused consumer confidence to plummet as major banks failed.
Customers are now allowed to overdraw checking with most banks and withdraw any remaining amount from savings with new technology updating savings dynamics. It’s no longer a mere rainy-day fund but acts like a second checking account.
Why Buy Gold and Silver?
Should you get gold and silver for this decade? Silver and gold bars and coins have been used for centuries for savings. In ancient Rome, savings were kept safe by burying it.
This was true also for soldiers during the civil war and has been found to be true in cases today. With recent bank failures, banks are being viewed as a less reliable place to keep money. A common question today is how much silver, or gold should you have.
The answer is personal for you as an investor. Many variables come with the decision to own precious metals, with each person having distinct objectives.
Some investors want to diversify their portfolio or use the metals as a store of value, while others have a combination of factors to ultimately accomplish their goals. The resources you allocate to physical metals should be made in a way that works for you.
The Analysts’ Weight In
The range is between 5 percent and 20 percent as the typical recommendation for the amount of gold to hold is an investment portfolio. The analyst’s range justifications vary but are not nuanced enough for the average investor.
The recommendation further lacks transparency to show where the information comes from or rigorous analysis to support it. For many investors, the recommendation doesn’t necessarily suit their situation and leaves them confused.
Many diversify with gold but also hold some silver. Silver has many of the same attributes of gold but is more affordable with a higher rate of return. Investors are uncertain if the 5-20 percent recommendation applies to silver and gold combined or each individually.
Why Avoid Allocating 100 Percent of Your Portfolio into Precious Metals?
The recommendation is to avoid putting 100 percent of your savings into silver or gold. One of the primary reasons to add precious metals to what is usually an equities-heavy portfolio is to diversify the assets and reduce the loss risks.
If the portfolio is 100 percent precious metal based, the risk is, again, increased because you lack diversification. View here for guidance on whether you should consider a gold or silver investment.
Considering Age for a Precious Metal Portfolio
Your age can play a part in the number of precious metals you hold. The retirement program through many employers like 401k recognize that needs and risk tolerance change as investor age progresses, and they offer age-based funds.
These automatically adjust the closer you get to retirement, reducing the risks. As your priorities change, your precious metals investments may as well.
For those just starting a career with less spending power silveer might be and attraction option. They may spend a larger portion on this metal. The downside is it has more volatility than gold, making it a higher risk. Investors can, however, expect a higher rate of return.
At the early stages of your career, it’s wise to max out your retirement plan, a strategy financial advisors recommend. Whether it’s a 401k or IRA, adding to a gold stack later can be challenging considering gold’s high price point compared to silver.
As a younger investor building wealth, the percentage allocated for precious metals might be smaller than someone older with more resources allocated to stocks, dividend-paying, interest-bearing assets. Precious metals have no yield. While they may appreciate, they pay no dividends.
An investor in their golden years may allocate a larger portion of wealth into gold, sometimes beyond 20 percent, as they plan their estate or to take advantage of tax incentives.
They also may recognize that their equity allocation is not providing the necessary diversification, their stocks and bonds are correlating together. In this case, it may make sense to hold a higher percentage in precious metals like gold.
Gold vs Silver in an Investment Portfolio
It’s difficult to recommend the amount of gold vs silver an investor should hold in their investment portfolio.
This will depend on personal objectives, reasons for investing in precious metals, and then allocating based on those goals. If hedging against economic shock and creating stability is the goal, gold is ideal and may be considered at a higher allocation.
If you want an asset to readily liquidate in small amounts with the potential for a higher rate of return, then allocate a higher percentage of resources for silver. There is no wrong allocation; it’s just trading off, as is true with any investment.
The amount you put in precious metals, whether gold or silver, should accommodate your financial objectives.
Final Thought
Conventional wisdom puts a reasonable target at 15 percent asset allocation for precious metals. Investors who prefer a more nuanced approach can factor if max contributions have gone to retirement plans, age, the yield on other assets, and if they have diverse portfolios.
Asset allocation reaching above 20 percent can make sense in certain situations, but it is an unusual approach. If using precious metals as a store of value, advisors will recommend having roughly three months of cash available, whether physically in a safe at home or in a digital bank account.
Before making substantial financial decisions, consult with an advisor to ensure you’re on track with personal objectives.
