Many ask me: “How much of my portfolio or assets should I put into precious metals or crypto?”
Although gold and silver have never fallen to zero, savvy investors think of precious metals as more of a hedge against inflation than an investment with a return. If you don’t quite understand the precious metal market (gold, silver, platinum & palladium among others), and you're not sure of your risk tolerance, you may not be able to understand where the value of gold or silver is going to go at any time.
Here’s a general rule: Invest 10% of your portfolio into Cash or Cash Equivalents, which can include Gold and Silver and cryptocurrency.
If you want to minimize risk on your precious metals investments, and maximize returns on your other asset classes, DIVERSIFY! Spread your risk. While many people associate diversification with mutual funds or ETFs, just doing investments like those may not diversify your wealth management like you want.
The most savvy investors have an exact science and art to diversification, and this is my favorite of the strategies. The 10% is part of it. It’s called 30-30-30-10.
Essentially, you allocate your portfolio into specific areas, each with its own unique characteristics and benefits. It involves investing:
Let’s start with the 10% – after all we’re talking gold and silver – and then I’ll let you in on the remaining 90%.
Use 10% of your portfolio to store a mix of cash or cash equivalents. This is where you put gold and silver.
Cash equivalents can include TIPS (Treasury Inflation-Protected Securities), precious metals like gold and silver, cryptocurrency, and option trading.
THIS is the segment where you hedge against inflation and market volatility. TIPS, for example, protects you against inflation by adjusting the principal of the bond to match the current inflation rate.
Precious metals like gold and silver are often used as a hedge against inflation and market volatility – and being a precious metals resource, you’ll want to consider our buying guides and fractional gold bar listings.
Cryptocurrency (which we also have a resource for -- read our article about Crypto Debit Cards) lets you diversify into an asset class that is not correlated with traditional markets. Option trading, meanwhile, is a way to generate additional income off of companies in your portfolio.
The first 30% of your portfolio goes into income-producing stocks, specifically dividend-paying stocks that have a history of increasing their dividends every year. These stocks are generally considered lower risk because they generate a steady stream of income and tend to be more stable than growth stocks, even during societal and political unrest. Examples include Coca-Cola, which has been increasing its dividend every year for over 55 years, and many other companies categorized as "Dividend Kings" or "Dividend Aristocrats."
The second 30% is real estate or real estate equivalents. You can go the traditional route of owning individual properties or even self-storage – OR if you want a nice way to get into real estate without managing property, invest in real estate investment trusts (REITs).
If you’re a High Net Worth Individual (HNWI) and an accredited investor, you can even participate in private placements with other investors to buy buildings or land together. And the United States is short 3 to 3.5 million units in lower to moderate income housing, making private placements especially interesting when it comes to land-buying.
The nice thing about real estate? It’s less correlated with the stock market. Plus, owing to that shortage of real estate, you can generate a reliable income from rent or property appreciation.
The third 30% is a managed portfolio. You can choose to either mirror an existing portfolio, where you literally mirror and lean on an accredited investor’s decisions, or work with a registered investment advisor who can manage your portfolio for you. Working with a financial advisor takes the pressure off you, because you’re relying on someone else's expertise in making investment decisions, and you don’t have to worry when an investor loses out.
No single strategy is foolproof. However, when you allocate your portfolio across multiple areas, you can minimize your overall risk, build a strong inflation hedge, and maximize your returns.
Going 30-30-30-10 strategy gives you a clear, simple framework for investing in gold and silver bullion, and to lay your eggs in multiple baskets. You get an organized mix of income-producing stocks, real estate, a managed portfolio, and a hedge against inflation: cash, TIPS, precious metals, crypto, and/or option trading. You can do both that and generate income, with a clear understanding of when, how and IF an asset will be affected by the stock market, a major financial event, or global upheaval.
And there you have it. That’s how you add gold, silver & crypto to your investment portfolio. Hold 10% to hedge against inflation, and mix in alternative assets and cash flow if you like a little extra sauce to your money.