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How Much Gold and Silver Should You Have?

A common question asked when buying gold or silver is, “How much should I have”? And there is a complex answer that is very personal for each person or family putting resources into gold and silver. Many factors play into the decision to own precious metals, and there may be multiple goals for the metals to achieve. Someone may invest a portion of a portfolio into metals for diversification, another for speculation, and yet another as a store of value. Or there may be some combination of factors.

Our goal with this article is to leave you with the tools and the mindset to determine how much of your resources to allocate to physical metals in a way that is right for you.

What do Experts Recommend?

The typical recommendation for how much gold an investor should hold in a portfolio ranges between 5% and 20%, depending on who you ask. This means if you have $100,000, you should allocate somewhere between $5,000 and $20,000 into gold. The justifications for the ranges analysts provide vary, but the recommendations are rarely nuanced enough for the average investor. To make matters worse, there’s a lack of rigorous analysis or transparency about where that recommendation comes from. This can leave investors feeling somewhat lost because the recommendation does not work for their situation.

For example, many investors who diversify into gold also have some holdings in silver. And for good reason. Silver has many of the same benefits as gold but is more affordable and has a higher rate of return. Does a recommendation of 5%-20% of holdings in gold include your silver holdings, or is it in addition to a silver allocation? And is 5-20% the right number?

The Efficient Frontier of Gold

There’s a concept in investing called the efficient frontier. The idea is to create a diversified portfolio that provides insulation from risk while maintaining your returns on investment – and this can be charted for a visual representation. By plotting out the expected returns and variance, investors can gain an idea of what allocation their optimal portfolio should have.

The difficulty is that everyone has a different portfolio, and the balance will change depending on how much you have allocated in various asset classes. However, many of the analysts who assessed gold found their portfolios were optimized for maximum returns when gold was between 20% and 30% of their holdings. For investors focusing on risk adjusted returns and lowering the volatility of their portfolios, data suggests that lower amounts of gold in a portfolio – between 5% and 25% depending on your country of origin – results in higher Sharpe ratios. A high Sharpe ratio indicates higher risk-adjusted performance.

Of course, all of this depends on your specific portfolio and how your assets are weighted. The review of different analyst’s models gives us a few important pieces of information that we can act on. First, we are more certain that a range of positive outcomes is achievable with portfolio weights between 5% and 30% gold allocation. Second, we did not see any analyst suggest a portfolio weight over 30% of gold would be best for either returns or volatility, which gives us a useful upper limit.  

The bottom line:

Holding 15% of your wealth in precious metals is a good place to start for someone looking for a straightforward and simple target that achieves portfolio diversification. This is easily attainable and can be fine-tuned to meet your financial goals. If you have more complex goals or want to use more advanced strategies, read on.

Reasons not to Allocate 100% of your Portfolio into Precious Metals

Before we talk in-depth about how much you should put into precious metals, we want to discuss something not to do. We do not recommend putting 100% of your savings or portfolio into gold and silver. This may seem odd, coming from a company that sells gold and silver. But we get this question occasionally from customers considering moving from a traditional 401k into a Gold IRA.

The lack of diversification is the main reason not to move all money into precious metals. Diversification is about reducing risk, and if you overexpose your portfolio to one thing, your risk increases. Reduced risk is a key benefit to holding gold and silver, so we do not recommend that you allocate 100%.

Age Considerations for a Precious Metals Portfolio

How old are you? Your age may partly determine how much gold or silver you hold. Many 401k retirement programs offer age-based funds, recognizing that risk tolerance and needs for the individual investor change as people grow older. Age-based funds automatically adjust as you approach retirement to reduce risk. Similarly, your investments in precious metals may change as your prerogatives change.

Someone early in their career may have less spending power and may want to hold a more significant portion of their portfolio in silver. Silver is a higher beta metal than gold, meaning it is more volatile. That volatility means it has higher risk but also lends itself to a higher rate of return. And someone early in their career may focus on maxing out an IRA or 401k first, a strategy that many financial planners advise. Adding to a gold stack afterward may be more difficult, as gold is much more expensive than silver.

Investors also need to understand that precious metals have no yield. They may appreciate, but they do not pay dividends. When you are younger and starting to invest, financial planners commonly recommend allocating more resources into higher beta, interest-bearing assets like dividend-paying stocks. This does not mean that a young investor should not put any money into precious metals, but their allocation may be a smaller percentage than someone older if they are following conventional wisdom. A contrarian investor, such as someone investing heavily in cryptocurrencies, may allocate more to metals, assuming the current system will fail. Time will tell if this strategy bears fruit or not. In these cases, younger investors may put more than 20% into metals, which is part of a strategy they feel is right for them.

An investor in his golden years may allocate a larger portion of wealth into gold, sometimes even beyond 20%, as part of their estate planning strategy or for tax advantages. Or they have realized their current allocation of stocks and bonds is not providing the necessary diversification.

For example, many age-based funds adjust over time to add more bonds to the portfolio and remove stocks. It is common to see portfolios for investors near retirement reach a 50/50 split of stocks and bonds. This is supposed to diversify the portfolio and reduce risk – i.e., if stocks go down, bonds should go up, providing stability. But there have been many instances throughout history when stocks and bonds correlated positively together, meaning that when stocks dropped, so did bonds. This happened in 2022 when the Federal Reserve began raising interest rates to fight inflation.

Gold on the other hand correlates negatively with the stock market during periods of stress. If an investor realizes that stocks and bonds in their portfolio are correlating together, they may decide to increase the percentage of gold in their asset allocations to achieve diversification. This is an example of when it may make sense to hold a greater percentage of your portfolio in precious metals like gold.

Gold vs Silver in Your Portfolio

How much gold vs. silver you should have in your portfolio is difficult to answer. We can best guide you with a suggestion to decide on your overall goals (why you are investing in metal in the first place), then allocate based on that goal.

See Also:
Top 10 Gold Coins for Investors
Top 10 Silver Coins for Investors

If your goal is stability and a hedge against economic shocks, gold is a great choice and should be weighted more heavily in your allocation. If you want an asset you can liquidate easily in small amounts with a potential for a higher rate of return, then silver should be a larger percentage of your portfolio.

Let us illustrate a couple of examples. If you have $100,000 and want to invest 20% into metals, weighted more heavily towards gold, you would be investing $20,000 total into your gold and silver allocation. An investor who wants an even 50/50 split of gold and silver would put $10,000 into gold and $10,000 into silver. An investor who wants to hedge against the markets might choose to put 75% into gold and 25% into silver, so their portfolio would be $15,000 into gold and $5,000 into silver.

There is no wrong allocation. There are just tradeoffs, as there are with any investment. How much you put into gold or silver should be based on your financial goals.

Gold and Silver as Savings, not Investment

Gold and silver coins and bars have been used as a method of saving for centuries. In ancient Rome, centurions and foot soldiers would go to war and bury their savings for safekeeping. Farmers buried gold and silver coins during the civil war when soldiers were nearby to guard against looting. In 2023, a massive hoard of gold coins was found buried on a Kentucky farm. Banks have not always been seen as reliable or safe places to keep money, and it is only recently in history this has begun to change.

Yet banks are constantly plagued with scandals. On July 11, 2023, Bank of America agreed to pay $250 million in fines and compensation to settle claims [PS1] that they systematically double-charged customer fees, opened accounts without user authorization, and more. In 2022, US Bank was fined $37.5 million for opening fake accounts in their customers’ names. In 2018, US Bank paid $613 million due to its failure to adhere to anti-money laundering standards. Wells Fargo created fake accounts in their customers’ names for years and was caught in 2016. They were fined $185 million.

Trust in the banking system has come under fire over the past decade as scandal after scandal, and multiple bank failures have wracked the US banking industry. And in 2023, we witnessed a series of bank runs as consumer confidence plummeted, causing several major banks to fail. 

On top of that, new technologies have changed the nature of savings accounts. Most banks allow customers to overdraw their checking account and then withdraw the remainder from their savings account. This turns a rainy-day fund into a second checking account.

The argument for placing savings in banks has grown weaker, with interest rates on many savings accounts returning a dismal 0.25%. To put that in perspective, for every thousand dollars in savings, you are making $2.50 in interest per year. The phrase “cash is trash” has become a meme in financial circles as the dollar continues to lose purchasing power, and the interest accrued in savings accounts amounts to small change.

Some investors do not view their portfolio in precious metals as an investment but as a savings account. Silver and gold have been mediums of exchange worldwide for thousands of years. While some money is held in institutions for everyday expenses, more money is put into silver or gold as a store of value. If this is your reason for stacking, then the prior discussion about allocating 5%-20% and adjusting from there is not the correct approach. That allocation assumes you are adding metals to an investment portfolio, not using it as your primary store of value.

For the stacker using gold or silver as a store of value and saving for the future, we recommend following common financial advice that says to have enough cash savings to manage through a crisis. Usually, the recommendation is to have three to six months’ worth of essential expenses in savings. We feel it is important to have some of that in cash so that you are not forced to liquidate your metals in an emergency, potentially at a loss. As a rule of thumb, if you keep at least three months of basic expenses in cash, the rest could be safely stored in metals for future use. Remember, whether you believe in the dollar or not, it’s still what we use to purchase goods and services.

The Last Word

Investors looking for a simple target backed by conventional wisdom can safely assume 15% of their asset allocation going to precious metals is a reasonable target. Investors who want a more nuanced approach may factor in their age, whether they have maximized contributions to retirement accounts, the yield on other assets, and whether their portfolios are truly diversified. Asset allocation above 20% makes sense in certain circumstances but is a more unusual approach. And finally, if using gold and silver as a store of value, most advisors recommend keeping at least three months of cash on hand, whether in a bank account digitally or physically at home.

We recommend consulting with a financial advisor before making any large purchases to ensure you make the right decision for yourself and your family.

Quick Guides to Investing

Step 1:

Why Buy Physical Gold and Silver?

If you are concerned about the volatility of the stock market, you’re not alone. The extreme highs and lows of the stock market often lead investors towards safe-haven assets, like bullion. Historically, the Precious Metals market has an inverse relationship with the stock market, meaning that when stocks are up, bullion is down and vice versa.

Step 2:

How Much Gold and Silver Should You Have?

This question is one of the most important for investors to answer. After all, experts suggest limits on how much of any types of investments should go into a portfolio. After deciding to purchase and own Precious Metals and considering how much money to allocate, one can then think about how much and what to buy at any point in time.

Step 3:

Which Precious Metals Should I Buy?

With the frequent changes in the market and countless Precious Metal products available, choosing investments can be difficult. Some want Gold or Silver coins, rounds or bars while others want products that are valuable because of their design, mintage or other collectible qualities. Also, collectors may shop for unique sets and individual pieces for their collections.

Step 4:

When to Buy Gold & Silver

After considering why, how much, and what Precious Metals products to buy, an investor’s next step is when to buy them. This decision requires an understanding of market trends and the impact of economic factors on precious metal prices.

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