Thursday, November 26, 2009

Building A Solid Foundation To Your Portfolio

In prior weeks I've been laying out the case for expansion of your holdings via diversification. The portfolio we're constructing is one that is intended to do well in the event of a plunge in the value of the dollar. We all sense that day is approaching. Those who fail to protect themselves, and their investments - from the ravages of adverse monetary retracements - will be subject to eventual decimation of the worth of their holdings.

Commodities act as a hedge to remedy the loss of your purchasing power. As dollar-denominated assets, silver and gold act as a protective balance. They tend to go up in value - it requires more daily-dwindling-in-purchasing-power dollars to obtain the same amount - as the dollar goes down. It's not a perfect solution; other factors - such as profit-taking and precious metals market suppression - enter in, but the correlation is close.

My recommendation is that you take advantage of any temporary drop in commodities prices to add to your position, or build an initial one. Daily pricing volatility can be frightening. But rather than being scared, why not view these occasional pullbacks as a purchasing opportunity? I tell my friends the following; if you want to protect yourself, this is what you need to do. Always start by purchasing bullion - tangible silver and gold - that you can physically hold in your hand.

I do not recommend programs which purport to store your bullion in unallocated pools. Stories abound of similar entities going bankrupt. That route is fraught with the potential for default. Tales could become rife of settlement in paper currencies. Paper currency - or should I say worthless money - is what you were attempting to avoid in the first place, and this outcome could neutralize your efforts. Jason Hommel has been writing of this danger for several years, and you might do well to heed his warnings.

I usually like to close with this sentiment, but it fits to include it here. Buy Silver. Buy Gold. Save Copper. Start Now. Build a sensible component of physical bullion into your portfolio. Five percent is just a starting figure. If security or storage is a problem, you could consider alternatives. CEF of Canada, SLV the ISHARES silver trust, and GLD - the SPDR gold trust - all provide bullion exposure without the aforementioned handicaps.

There are more - IAU and DBS are two - and others. Do your due diligence and determine which ETF might be best for you. These Funds also provide a vehicle for short-term trading which is just not feasible with physical bullion.Their shares are heavily traded. If you want to time the market, and trade for profit in precious metals, fine. Just never abandon your core position of physical bullion, always try to add to it when possible.

Do you prefer to live life in the fast lane? Some Funds provide double leverage, such as AGQ and DGP. But here a caveat is due. The following paraphrased text was borrowed, in part, from Fidelity Investments at, which warns "Such investments are only suitable for the experienced investor whose risk tolerance is high; and who can afford to lose some or all of their monies in this class of investment."

You'll never lose all your money if you hold physical bullion in your possession. Tangible silver, gold, even copper and nickel. Bars, ingots, rounds, coins. You can count your jewelry in this regard. You can keep all of it secret in a well-hidden safe. You could even store them in a safe deposit box at your bank, although that might not be as safe as you surmise. Every once in awhile take them out. Just to admire them. They're so pretty, they glow in the sun. And you too, can then bask in the realization, "I have some real money here, right in the palm of my hand."

Buy Silver. Buy Gold. Save Copper. Start Now.

Full disclosure. The author is long AGQ and DGP for the purpose of speculation. The author does not hold SLV or GLD as a bullion substitute, but might consider CEF. The author is long physical silver, gold, AND copper.

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