The importance of investment in personal finance is really significant. One must invest their wealth to speed up the financial growth of the investor. But to choose the right investment instrument is not an easy task. An ideal investment portfolio should be diversified through various instruments such as mutual funds, stocks, bonds, real estate and precious metals. The inclusion of precious metal in investment portfolio has become the call of time as it can be used as the shield against market volatility.
What are Precious Metals?
The precious metals were first-ever widely used investment instruments from time immemorable. People around the globe use precious metals as one of the best and safest ways to invest. The precious metals are the kind of metals which are rare in nature and high in economic value. The first use of precious metals was as currencies but in later period they are used as investment instruments. There are mainly four precious metals in which the maximum investment is done. The four most popular metals to invest are- Gold, Silver, Platinum and Palladium.
The gold is among those metals which were taken as the first investment instruments. The first use of gold was as currency and ornaments. Gold is one of the most popular metals as it contains long-term and protection against the risk of our financial system. This metal has additional uses in electronics and dentistry apart from making ornaments.
The use of silver as an investment instrument has come into focus in the last few decades. Silver is a less expensive metal than gold but the use of silver is various. Silver is used in batteries, circuits, electrical appliances, medicinal applications etc. Silver has higher availability in nature and plays a major role in affecting currencies worldwide.
Platinum is a rare metal as compared to gold and silver. The rarity, as well as the metallic properties of this metal, has made it one of the costliest metal available on the earth. But the point to notice that the price of platinum is quite unpredictable hence it creates high chances of profit as well as loss. Apart from ornamental use, platinum is used in the computer industry, chemical refining etc.
Palladium is discovered in the year 1803. Among all the four mentioned metals, this one is the least invested one but its importance to the economy can never be overlooked. The uses of palladium include making of the engine and ceramic capacitors in chargeable electronics. The white gold which is pretty famous in the ornament industry at present is an alloy of gold and Palladium.
How to Invest in Precious Metals
The investment in precious metals can be done in two different ways. The first is the Physical Investment which most common in countries like India and the second one is Paper investment. Let’s understand how both of these ways of investment works
As the name suggests, a physical investment means when you own physical gold and keep it safe in your own custody. The physical gold can come in different forms such as bars, rare coins or rounds. Buying physical gold is advisable as one can enjoy the maximum benefit of it as there will be no middleman to cut off the value of it. The physical investment in gold can be done in four ways. They are Bars, Rare Coins, Bullions Coins and Rounds.
Bars are the easiest way to invest in physical gold. Bars can be of different weighs and it is easily available in the market.
Rare Coins or the numismatic coins are the next forms of physical investment in gold. Such coins have a higher value than the face value of the coin. Such coins are rare, historic and limited in the market.
Bullion Coins are valued by its weight and not by the face value. Bullion coins are available in all four precious metals i.e. – gold, silver, platinum or palladium. Some of the Indian bullion coins are Mahatma Gandhi Bullion coin, Ashoka Chakra bullion coin etc.
Rounds look similar to rare coins but they are different as they have no face value. The value of round can be derived from the melt value of the round.
The paper investment is when you will not have the physical gold but you will have a document saying that you own a certain quantity of gold. There are three ways of owning a paper investment of gold- Certificates, Future Contracts and ETFs.
A precious metal Certificate can be purchased from banks which mention that you own a specific quantity of gold and can liquefy it as per your need.
A Future Contract mentions that an investor can get a specific amount of precious metal at a specific price irrespective of the market fluctuations.
Exchange-Traded Funds (ETFs) :
Exchange-Traded Funds (ETFs) are trusts that hold physical precious metals and an investor can buy the shares of the same. The price of the shares depends on the spot price of gold, silver or another. So buying shares of ETFs is an indirect investment in precious metals.
The Bottom Line
Investment in precious metals should be a must in our investment portfolio. One can start an investment with small amounts too. The key to investing in precious metal is the knowledge in this field. The volatility of the market can make you accumulate wealth with less time whereas the same feature can make you face a loss. Hence, one must be skilled in when to enter and when to exit the market to get the best returns.