This is another article on alternative investments, a topic often discussed when people have accumulated some wealth and don’t want to overstretch or saturate their positions in any particular holding. Traditional investment vehicles are the most common vehicle where wealth is held. Some examples are CDs, stocks, bonds, and even real estate.
Alternative investments on the other hand are vehicles such as precious metals, private equity/angel investing and venture capital for example. These are typically “less understood” by the masses, and many forms of these involve a high risk high return promise.
Alternative investments can be a healthy part of a healthy diversified investment strategy. These investments can be both short and long term in nature. If you have been reading this blog for some time, you likely know that I am involved in a few alternative investment vehicles myself.
They have worked out well for me so far. In this article our contributor has explained precious metals as alternative investments, and has answered some of the most common questions asked by investors when contemplating this type of an investment. I hope you find it helpful….
When people talk about different ways to invest, and different sources of investment, it is common to hear certain things – such as precious metals – referred to as “alternative investments.” But, for people who are new to investing, or at least new to the idea of investing in precious metals, this term requires further explanation.
So, what exactly makes precious metal an alternative investment, and how do such investments work? Here are some answers to key questions on the subject.
There is no exact definition for what constitutes an alternative investment, so the best way to answer this question is simply to say that precious metal performs apart from ordinary stock markets. Rather than relying on an individual economy, product, industry, or company, precious metal’s pricing is a result of a combination of world supply and demand, and the ebbs and flows of world currency values.
Additionally, raw precious metal cannot be purchased in an ordinary stock market environment. For these reasons, precious metals are thought of quite differently than stocks, bonds, etc.
(Note: You can purchase notes/certificates that are backed by real precious metals safely stored in vaults)
To some extent, the answer to this question will depend naturally upon your intentions for your investment. For example, as is the case with any investment, if you want a long-term commitment for your money, you will have to research historical trends over long periods of time. However, if you are looking for a short-term or experimental investment, you need only look at short-term projections and recent history.
Generally speaking, the market for precious metals is fairly simple to understand, meaning that you can get a thorough idea of both short and long term trends, and what causes them, with a relatively modest amount of research.
The most efficient way to invest in precious metal is through websites such as BullionVault where you can conduct all of the necessary activity. On these sites, you can buy any amount of precious metal you choose, at your own convenience and with constantly updated prices.
You are then free to withdraw your metal or have it stored securely at a vault of your choice until you decide to sell it back for currency. Ultimately, the process is very simple, efficient, and secure, and a good deal less stressful than other forms of investment.
As is true with any investment opportunity, the best strategy is to figure out which factors most directly influence the prices of precious metals. You can then use movements and trends in these factors to help you determine when to buy and sell.
Speaking very generally, when major world currencies appear poised to depreciate in value, it may be a good time to buy precious metals – similarly, when these currencies are strengthening, you may want to look for an opportunity to sell. More on analyzing these specific factors follows below.
As mentioned, trends in world currencies will influence buying and selling strategies with regard to precious metals. However, digging a bit deeper on the subject, the key factor to understand is that most investors treat precious metals as safe haven alternatives to currency.
The thought process is relatively simple: if your preferred currency is the euro, and European economies are struggling such that the euro is losing value in comparison to other currencies, you might consider purchasing a quantity of precious metal to protect the worth of your finances.
The hope is that the metal will remain stable or increase in value, stabilizing your assets. So, to determine timing with regard to buying and selling metal, keep a close eye on projections for major economies and their respective currencies.
The most important specific resources to keep an eye on with regard to precious metal investment are mining production and world currency rates. Production can have a direct effect on precious metal prices – for example, some believe that decreased production coupled with increasing demand for gold in China has the potential to raise gold prices.
Additionally, as mentioned previously, world currency rates can be reliable indicators of the prices of precious metals. While this is certainly a broad resource, tracking the overall strength of stock markets in major world economic systems will usually clue you in to trends you can expect in those systems’ respective currencies, which c an in turn help you to read the precious metals market.
While some have cautioned that precious metals are not quite as “safe” as investments as many claim, the bottom line is that they have performed extremely well over the course of the past decade. In fact, The Telegraph recently stated that gold is the single best performing investment of the past decade, having risen 277% in value over the past ten years (a rise that outstripped inflation significantly).
It should still be noted that precious metals are used more for investment stability and gradual, long-term gains than quick, significant returns – but, looking to the past, they have been as reliable as any investments for several years. In fact, despite a surprisingly strong decade for real estate investors, precious metals (and most significantly gold) have performed notably better than both the real estate market and ordinary stock markets in recent years.