In this article we will discuss the difference between speculating with papier-mâché investments designed to replicate gold and owning the tangible asset. One investment vehicle is considered speculation, and the other is viewed as a hedge.
The foundation of a portfolio should be likened to the foundation of a home. A home’s foundation is a load-bearing concrete slab designed to stabilize and support the structure built upon it. A properly diversified portfolio should be based on investment vehicles that will support overall stability and promote economic security.
Precious metal ETF’s, mining stocks, commodity options, and futures contracts are considered speculative in nature and carry a heightened level of risk. Physical precious metals are viewed as a hedge because there is zero risk associated with debt. In other words, no one is borrowing or loaning against the tangible precious metals you own.
Hedging and Speculating in a Properly Balanced Portfolio
A properly balanced portfolio should consist of products intended to hedge and investments designed to speculate. A speculative investment is utilized for the possibility of gains while assuming a possible risk of loss. For example, stock investments are commonly viewed as a speculative investment. A speculative stock investment can go to zero in value.
A investment hedge is a way to protect against total loss. A hedge is a way to offset stock market volatility and speculative investment risk. Physical precious metals are an example of a commonly used investment hedge. Unlike stocks, physical precious metals have never gone to zero in value.
Precious metals have a comparatively low or negative correlation when compared to stock investments. When the value of stocks decreases, precious metals are likely to rise in value and promote portfolio balance and stability. Gold and silver coins are commonly utilized to offset the risks associated with speculative stock investments.
Building a Portfolio on a Solid Foundation
Physical precious metals are commonly viewed as an insurance policy for your portfolio. Precious metal products, such as gold and silver coins can be utilized as a hedge against geo-political uncertainty. Gold and silver are used as investment vehicles to protect against fiat currencies and arbitrary government policies. When the values of other assets decrease, precious metals rise in value and promote portfolio balance and stability.
Precious metals are not prone to mismanagement or mishandling by corporations or government entities. Precious metals are not subject to government policy changes. For example, when you own a gold Eagle coin, no one can borrow or loan against your gold coin. Physical precious metals are free from the risk associated with debt.
The percentage of physical precious metals you own should be based on the current market trends and your personal financial goals.
Promoting Peace of Mind with Proper Portfolio Diversification
Properly diversifying your investment portfolio is essential to reduce risk and build long-term wealth. You can protect your portfolio from market volatility and potential economic downturns with a proper balance between investment vehicles designed to hedge and speculate.
FAQ: Your Key to Understanding!
