Thursday, February 17, 2011

A Lesson in Diversification, Precious Metals, and Insurance.

On February 9th, $750,000 in silver bars were stolen from a 52 year old man's home in British Columbia. The man said that the silver stored in his house constituted the majority of his life's savings and that he attributes the fault of the theft to one of his friend's or family members who he says must have told the robbers about his stash. 

Clearly, this man needed a lesson in diversification, precious metals investing, and insurance:

  • One single commodity, whether it is gold, silver, oil, corn, etc. should never constitute the majority of your life savings and investment portfolio. One speculative commodity, ie. commodities that do not produce an income stream, should ideally not be more than five to ten percent of your portfolio. Their prices are historically very volatile and investors can get burnt quite easily.
  • There are also other ways to own precious metals than possessing the physical hard asset, which requires both storage space and an increased level of security to ensure no theft. Numerous exchange traded funds such as the Gold ETF (NYSE:GLD) or Silver ETF (NYSE:SLV) enable the intelligent investor to efficiently buy and sell commodities at a moment's notice and without the hassle of transportation and storage. In addition, since they are exchange traded funds, close to the current market price of the commodity can be obtained without too much hassle, just with the click of a mouse or a telephone call to your broker. 
  • Remember to NEVER have a large amount of savings or valuables stored at your residence. Not only are you risking the loss of your money, but you are clearly risking your own, and your family's, safety should an undesirable ever choose to try and take them. Banks and other institutions will hold your valuables for a fee, and they are on the hook if anything goes missing.
  • Lastly, if for whatever reason you choose to store valuables in your home, get the appropriate insurance coverage. The man in the above mentioned story neglected to get any coverage because he thought that it was too expensive to protect his investment. If something is so important to you that if you lost it your material welfare would greatly decline, it should be protected!
To read more about this story, or to look at how you can buy some gold and silver efficiently, intelligent investors please follow the links below : )



  1. Excellent analogy to spark the interest. Thank you Matthew.

  2. Thanks Anonymous, much appreciated. An analogy is always a nice way to express a point... especially in the investment world.