How to Invest in Precious Metals

Experienced investors have long known that gold, silver and platinum can be a solid investment choice. Precious metals are stable in times of worldwide uncertainty, or when the economy is bad. Used correctly, they can be an effective component of a diversified investment portfolio, but remember, they are an investment like any others, and have an element of risk (albeit more modest). It's essential to achieve the proper mix.

Difficulty:

Moderately Challenging

Instructions

Things You'll Need

• Metals dealers

1. Be familiar with the five principal ways to invest in gold and precious metals: tangible coins and bars; certificates; precious metals mutual funds; stock in mining companies; and gold and metals futures.

2. Go with coins or bars if you're interested primarily in safety and diversity.

3. Break down tangible precious metals into its subcategories: bullion and numismatics. Gold bullion (or bars) is pure or almost pure gold. Numismatics are minted coins, which often commemorate special occasions.

4. Search for both online and brick-and-mortar precious metals dealers. Find out how long the dealer has been in business, whether he or she specializes in one segment of the market, and who the typical client is.

5. Shop around. The markup on coins and bars will vary. One popular choice for coins is the 1 troy ounce size as they are easy to buy, sell and store.

6. Educate yourself about the numismatics market. The design and condition of a coin can affect its price as much as the precious metal content itself.

7. Choose certificates if you would rather not store anything. A certificate represents ownership of a certain quantity of a specific precious metal.

8. Consider stocks and funds for additional choices. Precious metals funds, because they are diversified and managed, are the most stable. Stocks are less stable, because you're buying into only one company.

9. For a higher risk/higher potential return alternative, consider precious metals futures if you feel confident of your ability to predict whether the value of metals will increase or decline. Futures are a contract to buy or sell metals at a particular price at a specific point in time. Doing well with them depends solely on what happens to the value of those metals during the contract term.

Tips & Warnings

• Because of their volatility, precious metals should represent only a small portion of your portfolio--10 percent at the most.

• The most conservative way to go into precious metals is through a mutual fund. It's professionally managed, diversified and is particularly well-suited to new investors.

• The drawback to precious metals is that they increase in value only when the price per ounce goes up. By contrast, stocks and bonds can pay dividends and offer other income sources. If conditions for gold are poor, your stash can sit for years doing virtually nothing.