If you're looking to diversify your investment portfolio, one smart way to hedge your bets is with good, old-fashioned gold, says Mark O'Byrne, research director for GoldCore, a bullion broker and storage provider.
"Gold has been shown to enhance returns and to reduce overall volatility over the long term," Mark says.
This was clearly seen in Ireland and internationally during the financial crisis; gold was one of the very few assets to rise in value in all currencies, including in euros, he adds.
We recently checked in with Mark to learn more about the basics of investing in precious metals. Here's what he had to say.
Tell us about GoldCore.
GoldCore are one of the leading bullion brokers and bullion storage providers in the world. GoldCore are international bullion dealers and have over 4,200 clients in over 45 countries, with over $200 million in assets under management and storage.
We offer investors internationally the opportunity to buy gold coins and bars at the lowest premiums above the precious metal spot prices. We make buying and selling bullion quick, easy and safe and have some of the most competitive prices in the industry.
We provide a complete range of gold and silver bullion formats including gold bars available in various sizes for international delivery and storage. All gold bars are 0.9999 pure (24 carat) and investment grade gold bullion.
All our coins and bars are supplied direct from leading, approved refiners and leading government mints.
We offer mass affluent investors, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in Zurich, Singapore, Hong Kong, Dubai, Perth, London and New York.
Why do you advocate investing in precious metals? What are the benefits?
The key to successful long-term investing is diversification and owning a range of different assets. Diversification helps smooth returns over the long term since it reduces the overall volatility of a portfolio and returns. In other words, it reduces investment risk and exposure to single assets like stocks or bonds. This risk reduction is possible because not all assets move in the same direction at the same time.
Adding an asset such as gold to a portfolio that has a low or negative correlation with other assets aids in risk reduction and enhances returns in the long term.
We are living in volatile financial times and investors will face challenges in the coming years - the Euro zone and other debt crises are far from resolved. Debt crises tend to lead to currency devaluations and financial and monetary crisis.
Wealthy individuals, pension funds, companies, endowments, charities, foundations, family offices, hedge funds and central banks are diversifying into gold today.
What are the risks associated with investing in precious metals?
Gold, like stocks, bonds, currencies and all traded markets, is volatile. Therefore it remains prudent to shun leverage and short-term speculation and to buy gold as a long-term diversification.
Over-concentration in any asset class including gold is risky. The standard allocation to gold is between 5 percent and 15 percent of a diversified portfolio.
Gold can fall as well as rise, and past performance is no guarantee of future returns.
What other types of investments do you like to build a more diversified portfolio?
Equities, bonds, property and cash remain important assets in a portfolio. Although many stock and bond markets look very toppy and may already be in bubbles. Conversely, gold, silver and platinum remain well below their record nominal highs.
Ibbotson, the asset allocation experts, have shown in a respected research piece that owning all three precious metals in a diversified manner reduced overall volatility and helped overall returns.
What types of metals are the most lucrative right now? Which ones are lagging?
All precious metals - gold, silver, platinum and palladium - are lagging right now and are well below their record nominal highs of recent years.
In the same way that stocks, bonds and many property markets have surged to record highs in recent months, we expect precious metals to outperform most assets in the coming months and reach record nominal and real, inflation-adjusted highs in the coming months.
What consideration should investors make when deciding whether to invest in precious metals?
The primary consideration is how to invest in or own gold. Investors are safer owning actual physical gold rather than paper gold in the form of CFDs, options, shares and ETFs.
Today, many investors, including central banks, are opting for the safety of actual physical gold bars. The favorite location to own gold remain Switzerland, but increasingly Singapore and Hong Kong are seen as politically and economically stable places to store gold.
Another very important consideration is doing due diligence on the gold broker and establishing they are reputable and established.
How is investing in bullion different than other types of investments logistically?
Investing in bullion is different as you own a real, tangible asset that you can take delivery of in a worst-case scenario. This physicality means that you have to pay a storage fee for insurance and security.
How can investors ensure their precious metals are secure?
Do due diligence on the bullion broker and the storage provider and establish their bona fides. Some of the key must-haves for prospective buyers are:
- Ability to take delivery
- Bullion authenticity
- Gold bullion audits
- Online storage inventory
- Being able to visit and view holdings
- Insurance of bullion at storage facilities