Expert: Steve Hach - 12/4/2007

Question
I am thinking about investing some money in the platinum, gold, and silver bullion bars/coins.  I have already maxed out the last two years ROTH IRA for both me and my wife in which we invested in mutual funds that are doing well.  I would like to try something different this year, but then again I know that the metals would only grow in appreciation, whereas the mutual funds pays dividends, and the interests compounds.  Your thoughts and suggestions would be appreciated.

Answer
Hi Jason,

Thanks for the question.

Precious metals are traditionally used as a hedge against inflation.  They have been on a huge run up as of late and are now trading at or near historic high levels.

I am not really an expert in metals, but I can say that you can make a lot of money off them or lose your shirt.

It is important to be careful.  I do not think they can be used as a substitute for more "regular" investments like stocks, bonds, etc.

However, right now a lot of people are buying some gold since the economic situation seems so uncertain.

Portfolio strategies seem to be moving away from stocks and into safer investments that can perform well in times of inflation and recession--and that is the worst case scenario on the horizon right now.

I suggest you look at the historic price of gold and educate yourself as to when the last time gold performed really well--hint, it was late 70s, early 80s.

Also, I do not believe that silver has been following the performance of gold and platinum so you should check that out as well.

One question that comes to mind is do you have any debt?

If you have extra capital and you are not sure what to do with it I always suggest trying to get debt free.  Make some extra payments on the mortgage, or your student loans, etc.

Again, precious metals are not an area my firm deals with, I know people are putting some money into them now for safety, but I also know that the prices are very high right now and I am not sure if they can go still higher in a manner that would make them a wise investment.

Typically you buy metals as a hedge, not because you are expecting to make a large return.  As you correctly note metals pay no interest, no dividends, and if you do not have good timing you can get burned.

Hope this helps.

Best,

Steve