Most investors are aware of the importance of precious metals in a balanced portfolio.

It’s been my experience that the vast majority of those that don’t put much emphasis on gold, silver and platinum consider it to be a boring, low return sector.

Quite the contrary. Since the turn of the century, gold and silver have matched the S&P 500 in total return at 9.75%. Over the last 50 years, which covers the investment lifetime of most of the folks reading this article, gold has returned 8%, the S&P 500, 11.47% but with considerably more volatility.

Precious metals are often inversely correlated. When one asset rises, the other often falls … not always as in the current year, but often enough to be considered hedged. This year, so far, gold is up 19.5%, the S&P 500 has gained 18%.

Most investors buy gold/precious metals for two reasons:

1. Inflation protection.

2. Protection against the drop in the dollar and world tensions.

The biggest question I receive from investors is what form does one buy precious metals? There are several ways:

• Gold/silver coins: Various denominations are available from dealers for a mark-up over the current (spot) dollar value. Coins such as the American Eagle, South African Krugerrand and the Canadian Maple Leaf, have an advantage over other choices in that they are considered currency and legal tender. Bullion, on the other hand, must be weighed and assayed before sale, thereby less liquid.

• Exchange traded funds: The largest gold exchange traded fund goes by the symbol GLD. SPDR Gold Shares track the spot value of gold bullion daily. One can also participate in the precious metals by purchasing the actual mining stocks themselves. The mining stocks often outperform the metal, but not always. When one buys a stock in a mining company rather than the metal itself, other factors can complicate the return. How well is the company doing? What are its reserves? Is it profitable? Gold bullion/coins are an asset for the ages. Gold mining stocks not so much.

My advice when considering owning precious metals is to consider what is the ultimate purpose? As one can read, gold/silver makes an appropriate diversification asset as compared to stocks, bonds, real estate, oil/gas, etc. Buying and holding gold coins in a secure location is a sound approach, but at $1,600 an ounce the cash outlay can get pretty pricey. Exchange traded funds are simple, easy, liquid and are perfectly fine to hold in retirement accounts. With that convenience comes more price fluctuation.

As with any investment, familiarize yourself with the asset, do your homework and realize the importance of diversification.  

John Rush Vann Jr., d/b/a Vann Investment, is a Registered Representative of Rhodes Securities Inc. and an investment advisor representative of Rhodes Investment Advisors Inc. Investing in securities involves the risk of loss.