How Much Gold and Silver Should I Buy for My Portfolio?

By Jeff Clark, Senior Analyst, GoldSilver.com

Editor's Note: With gold approaching its all-time record high price of $2,061 today, we want to point out that the "crisis" isn't over. And we don't mean just what's happening in Ukraine. With that in mind we thought it is a good time to share Jeff Clark’s analysis on determining how many ounces of physical precious metals you may need for the road ahead.

How much of your portfolio should be in gold or silver? What percent of your portfolio should they comprise? And should you buy more of one metal than the other? 

These are important questions. Buy too little and they may not make a material difference to your portfolio. Imagine the sick feeling in your gut if, during a crisis, you realize you didn’t buy enough bullion to withstand it (or better, if you had enough gold and silver, to earn a handsome profit from it). Buy too much and your portfolio is negatively impacted if prices go nowhere or fall.

To answer this question effectively, there are some practical guidelines to consider. And since every person’s circumstances are different, this article will help you develop a custom-tailored strategy suitable to your goals and risk tolerance.

Here are three key questions to ask yourself, along with a bonus question. Answer them and you’ll soon have a bullion strategy ideal for your personal situation…

Question #1: What Are Your Goals as an Investor?

The starting point is to understand your goals. The following questions might help clarify why you’re buying gold and silver, which is the first step in determining how much to allocate to them. 

Are you buying gold and silver…

• For a short-term gain, or as a permanent long-term holding? Or maybe both?

• Because they are currently undervalued and you plan to sell when they become overvalued?

• As a hedge, because you’re concerned about the potential future downside in the stock market or the economy in general

• For collectible purposes, to potentially earn more profit than standard bullion?

• Because you want to own a tangible asset and not a paper form of metal?

As you ponder your priorities, keep your risk tolerance in mind. The less risk you want, the more gold you want. That’s because it’s been money for thousands of years and never gone to zero. In a worst-case scenario where everything else has gone to zero, gold will be the last line of financial defense for everyone. And be priced accordingly.

One criticism of gold is that it doesn’t produce profits or pay dividends like stocks. However, it is precisely the lack of those characteristics that gives gold value.

Physical gold and silver…

• Do not have to please shareholders with quarterly results. Stocks do.

• Carry zero counterparty risk. Most investments do.

• Are a store of value, particularly during crises and crashes. Stocks are not.

• Have limited supply. Fiat currency has unlimited supply.

One of these factors is especially important… consider just how much you trust a corporate or government entity to hold up their end of the bargain in a systemic financial crisis. Then consider how your goals match up with this fact:

• Gold and silver in physical form have no counterparty risk. By owning them, you and you alone possess their full value at all times.

Question #2: How Much Do I Need to Make a Difference?

I shorted the stock market in October 2008, when the S&P fell as much as 33% in one month. 

It was great timing! I’d bought shares in SDS (ProShares Ultra Short S&P 500), an ETF that rose twice as much as the S&P fell. It was a short-term trade, and I personally booked a profit of over 50% in three weeks.

You probably think I made a lot of money. But it made almost no difference to my overall portfolio!

That’s because I didn’t buy enough shares relative to the size of my total assets. My position was too small to make any difference to my portfolio—it was so small, in fact, that my net worth still ended the month lower.

I made the correct investment call. My timing was great. But my small position kept me from benefitting.

• You can’t buy one Gold Eagle or one tube of Silver Maple Leafs and expect either to provide much benefit.

So how much will make a difference? Here’s some solid, long-term research that can help answer the question…

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