I get questions regularly from people who want to invest in gold and silver but are not certain how to allocate hard assets in their portfolio. This is a big topic for a single chapter, so I would recommend some additional reading as part of your research.
Another challenge in addressing the issue of hard asset allocation in a general manner is that there is no one right answer. Your allocation will depend on a number of factors including your current financial position, the amount of liquid assets currently in your portfolio, your age and tolerance for risk. What I can do, is share some general guidelines and my current recommendations.
I advise most people against buying gold and silver as a speculative investment. We all like to make money and it’s great when your gold and silver goes up in value, but that’s not the primary reason for buying it. Purchasing hard assets is a defensive investment you make to preserve the wealth you have made in relative terms as measured against currency and cash-equivalent investments. If you want to make speculative investments in gold and silver, then I suggest you focus on gold and silver coins with numismatic value and be prepared to deal with people who have been making a living trading rare coins for years.
The amount of your asset allocation you put into defensive investments will depend on how you see the strength of the economy and the stability of global finance. When times are good and investments like real estate and equity markets are booming, then defensive assets might only account for 5 to 8 percent of your investment allocation. Today, I’m still not seeing any path to sustainable growth in the global economy. Governments around the planet are struggling with debt, and are meeting their debt obligations by printing money. Joblessness is a global problem that does not show any signs of abating in the near future.
Given the unstable state of the global economy and currency policies of many governments that favor currency dilution, a wiser hard asset allocation might be 10 to 15 percent of your net worth. If you don’t need to keep a lot of fast cash on hand, you could push that allocation to 20 percent. I would not recommend a percentage in any hard asset class higher than 30 percent. That’s too much of your financial future hanging on one asset class. I also disagree strenuously with people who insist the only safe course is keeping all their wealth in silver and gold. Having all your assets in one asset class is just as risky as not owning any hard assets.
To get the most value and benefit from your hard asset investments in gold and silver, I would suggest taking physical possession. When most people think of storing gold they picture pallets stacked high with gold bars, but that’s only the reality for a central bank or Fort Knox. $150,000 in gold, a very large amount for most investors, would weigh just over five pounds. Not that difficult to secure in a well made safe.
The next question is what kind of allocation between silver and gold. I won’t go into a lot of detail, but for a moderate investor I might suggest 35 percent bullion-priced physical gold, 55 percent in bullion-priced silver and 10 percent in rare coins as a starting point.
The final question to resolve would be what type of bullion-priced assets to buy. You’ll be choosing between gold and silver bars and various fractional products. The best mix will depend on current market prices and availability. When you get down to the point you’re ready to buy, I’d highly recommend talking to an experienced dealer for specific advice.
Hussman's Open Letter to the Fed; The Problem with Bubbles; Textbook Pre-Crash Bubble; Reflections on Not Chasing Bubbles; Integrity vs. Respect | Mike Shedlock