Precious Metals vs Stocks

Precious Metals vs Stocks

Investing in precious metals and stocks is a way to diversify and grow your wealth. Both have pros and cons, and it's important to understand their differences. Investing in precious metals can protect against inflation, currency devaluation and economic uncertainty.

On the other hand, investing in stocks can provide more potential for higher returns but can also be more volatile in the short term. Understanding the differences between the two is important before deciding which one makes more sense for your financial goals.

In this article, we'll explore the advantages and disadvantages of investing in precious metals versus stocks and what you need to know to make an informed decision. In addition, we'll also give you a few investing tips for stocks and precious metals.

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Precious Metals vs Stocks

What is Investing in Precious Metals?

Precious Metals vs Stocks

Investing in precious metals is purchasing gold and other metals such as silver and platinum. Precious metals are assets that have high value to investors but aren't tied to the health of a specific economy or country. This makes them assets that are unaffected by political or economic uncertainty.

They can also be stored away for very long periods. Because of their high value, they cannot be used in normal commerce. They can be sold or traded on an open market.

What are Stocks?

Stocks are ownership shares of a company that gives the owner a claim to the company's earnings and assets. They also allow investors to share in the company's growth and provide price stability by linking stock prices to corporate earnings.

In other words, stocks typically pay dividends, or distributions typically paid out twice yearly based on profits made by a corporation. The price of stocks is based on expectations and estimates of future corporate performance, which is why they often fluctuate in the short run.

What Fundamentals Make Precious Metals and Stocks Investment Options?

Investing in precious metals such as gold has numerous fundamental drivers, including:

  • A historically low trend of interest rates: As interest rates trend lower over time, precious metals often outperform because a rise in the interest rate can make holding less attractive due to lower returns.
  • An inflationary environment: If inflation is expected to rise throughout the investment, holding precious metals could make sense. Prices of precious metals have often been increased in periods of high inflation.
  • A view that the asset class may be undervalued: If a company believes that the price of an asset will drop because it has further to go in its growth trajectory, or if an investor believes that a stock is undervalued, then it could make sense to invest in their stocks instead.
  • Planning on holding long-term: If you want to hold the investment for an extended period, then precious metals may make more sense. The prices tend to be more stable in the long term, particularly if it's hard to predict what will happen.

What are the Advantages of Investing in Stocks?

There are several advantages to investing in stocks, including:

  • Potential for higher returns - Stocks can also provide the potential for higher returns because the value of a company's stock is directly correlated with the company's performance.
  • Diversification - Stocks can also be used as a way to diversify your investment portfolio. The S&P 500, for example, is made up of 500 of the largest publicly traded companies in the United States. Investing in stocks can help you diversify your assets across a large range of companies within one asset class.
  • Liquidity - Stocks are more liquid than precious metals, making them a better option for investors who may need to sell their stocks quickly.
  • Volatility - Stocks are known to be more volatile in the short run than precious metals. This can make stocks volatile if you have a shorter time horizon, especially if you plan to use your wealth in the next decade or less. However, it also means that stocks may perform better in the long term.
  • Ability to participate in equity value growth - When a company's performance is strong and its stock rises, investors can take stock ownership for a fraction of its true worth.

What are the Disadvantages of Investing in Stocks?

There are also downsides to investing in stocks, including:

  • The money invested can be earmarked for specific goals or retirement accounts.
  • It can be more volatile in the short term. The price of a stock may trend up or down in the short term based on a company's future performance and earnings.
  • The value of stocks can tend to move more slowly than other assets, but they may not provide as much protection against inflation over the long term.
  • If the share price falls significantly, investors may lose all or part of their investment. Investors may also have to pay more taxes if a stock is sold in a taxable account.
  • The price of a stock can often trend up or down based on estimates that a company will grow its earnings at an above-average rate over time.

Types of Stocks to Invest In

Precious Metals vs Stocks

There are several types of stocks to choose from, each with its advantages and disadvantages. Stocks can be found in many industries, offering a range of investment opportunities that may help diversify your portfolio

Large-Cap Stocks

Large-cap stocks are popular among investors because they have higher liquidity and lower volatility than small-cap or mid-caps. Due to their size, they can command higher premiums on the stock market than small-cap stocks and trade at a more stable price.

Developed World Stocks

Developed world is another type of stock that may be more appealing to investors due to its stability than emerging market stocks. This type of stock is also often referred to as a blue chip because it consists mainly of large, well-established companies in developed countries. Many technologies and healthcare companies are part of this category.

Emerging Markets

Emerging market stocks are popular due to their perceived growth potential, which can be measured by historical stock performance. It is also seen as a more volatile investment. However, some argue that this is because the stock market will eventually adjust to the newly offered information about a company's long-term growth potential.

Small-Cap Stocks

Small-cap stocks are often viewed as less risky than larger companies, with lower volatility and cost of trading. Many investors consider small-cap stocks riskier and prefer large-cap stocks to invest in stocks. Small-cap stocks also have a higher risk because fewer institutional investors invest in them due to their low liquidity than large caps.

Corporate Bonds

Corporate bonds are a popular choice for diversifying a portfolio. Companies can issue bonds at various credit ratings from junk (lowest) to AAA (highest). Investors can buy corporate bonds either in the primary or secondary markets. Corporate bonds may also be referred to as bonds and may be issued in one of four types:

  • Government Bonds: Government bonds are issued by the government and are backed by the government. These are considered safer investments than corporate bonds because they are legally obligated to specific terms and conditions that private companies cannot enforce.
  • Unsecured Bonds: Unsecured bonds do not have a high credit rating. Investors investing in these bonds do so at their own risk.
  • Hybrid Bonds: Hybrid bonds are issued by an institution and backed by corporate and government bonds.
  • Equity-Indexed Bonds: Equity-indexed bonds are debt instruments that bear interest based on the performance of an index such as the S&P 500.

Why Choose to Invest in Precious Metals?

Precious Metals vs Stocks

Investing in precious metals like gold, silver, palladium and platinum can be a smart addition to your portfolio. Precious metals are seen as a haven asset, meaning they tend to retain their value over time when stocks and other investments may be volatile. Many investors choose to add precious metals to their portfolios to diversify their holdings and hedge against the risk of inflation.

Precious metals have a long history of being a store of value and a reliable source of long-term wealth. Gold has been used as a currency for thousands of years and is still often seen as a symbol of wealth and status.

Silver has many practical uses, including use in jewelry, electronics and medicine, and is often seen as a less expensive alternative to gold. Palladium and platinum are both valuable and rare metals used in various industrial applications.

The price of precious metals tends to move independently from stocks and other traditional investments, making them a good choice for diversifying a portfolio. They can also act as a hedge against inflation as prices tend to rise as the cost of other goods and services increases.

Additionally, precious metals are your portable, divisible and tangible assets, making them more secure than paper investments.

Types of Precious Metals to Invest In

Three basic categories of precious metals are Precious, Semi-precious and Inferior. Each has its benefits and drawbacks.


Gold is currently the most trusted of all precious metals. It is often considered the standard by which other precious metals are valued. It has often been a long-term store of value and has a low correlation with the stock market.

It has been in use as money for over 5,000 years. It remains a highly coveted asset, despite its liabilities. It is easily counterfeitable and only useful for practical applications such as electronics or medicine compared to silver. This can make it more difficult to find investors willing to hold gold as an asset, though many plan to hold it in the long run.

Gold can be found in various places, stream beds, rivers, seas and space. Gold is also mined from the earth's crust and can be purchased in two forms: bars, usually traded by weight; and coins or bullion bars which are sold based on their precious metal content.


Silver is considered the next most practical of all precious metals. The heavy metal can also be found in various places, such as soil and water, as well as on the earth's crust. It is often used in medicine and electronics, making it highly popular for investors looking to diversify their portfolio into a more practical metal than gold. Silver does have a low correlation with the S&P 500, so it can be a good way to diversify your assets outside of stocks.


Palladium has a low correlation with many other asset classes, making it a good choice for diversification. It is primarily used in the automobile industry, air conditioning units and certain healthcare equipment.


Platinum is also a rare element found on the earth's crust. It is found in streams and rivers, as well as in space. While it has few industrial uses, it is resistant to corrosion, making it extremely valuable for jewelry manufacturing and other applications requiring resistance to wear, such as electronics, dentistry or medicine. While gold has been used historically as a store of value, platinum has been used less often because of its lower availability.

Different Ways to Invest in Precious Metals

There are many different ways to invest in precious metals.

1. Investing in Physical Precious Metals

Precious Metals vs Stocks

This is the most common method of investing in precious metals, as it requires no financial knowledge and low risk. Metal dealers will purchase the metal directly from you and then sell you the metal in exchange for cash.

You can also buy gold and silver bars online or at a local mint. As many refineries specialize in refining precious metals, dealers can offer you a wider variety of products when selling metal.

Bullion, coins or bars and jewelry are all great ways to invest in precious metals. If you choose bullion, coins or bars (as opposed to jewelry), you can keep these assets in your home or office. These metal investments may be viewed as cash because they can be sold at any time for the amount of gold or silver they contain.

Many investors store their precious metal assets at a dealer-provided facility and are insured by a third-party carrier such as Lloyd's of London.

2. Investing in Precious Metals Notes and Mining Stocks

If you wish to invest in a mine, not the metal itself, you can purchase precious metals notes from your trust company. Notes are backed by a precious metals reserve worth one times the note's value, with the note's value tied to it.

If you choose to invest in mining stocks that have mines, you may be offered a dividend on your investment and some shares of the actual mine. All shares will be purchased from the original owner of the mine, so you will be able to purchase the actual mine at a discounted price.

If the mine is bought by another investor and sold for more than purchased, you will retain your shares and fees.

The value of mining stocks may fluctuate depending on the demand for metals and other industry factors. The price of precious metals and the demand for commodities such as oil and food fluctuate over time. While these factors may negatively affect the price of precious metals, the dividend from your mine may provide an added benefit.

3. Investing in Precious Metals Through Stock Mutual Funds or ETFs

You can also invest in precious metals through a stock mutual fund or ETF. This type of investment is similar to investing in a company, as most stocks with gold or silver have small variances in their price based on supply and demand.

While the price of precious metals may fluctuate, the value of your share will remain constant because the metal will be held in a vault or safe. Therefore, investing in an ETF or mutual fund with gold will remain the same regardless of your overall financial situation.

4. Investing in Precious Metals Through Precious Metals ETFs or Mutual Funds

When investing in precious metals ETFs or mutual funds, you can gain exposure to the prices of gold, silver, platinum and other metals without having to purchase physical bullion. Investing in a fund can benefit from professional money managers' expertise and the diversification and liquidity of a pooled investment.

Precious metals ETFs typically track the price of a single metal, such as gold or silver, while mutual funds may invest in multiple metals. ETFs offer more transparency as they publish their holdings daily, whereas mutual funds typically only report them periodically.

However, mutual funds may have higher minimum investments and associated fees, so it's important to evaluate the costs of each option.

It's also important to consider the tax implications of investing in precious metals. ETFs and mutual funds are generally regarded as passive investments, so any gains made on the sale of the investment are taxed as capital gains.

5. Investing in Precious Metals Through Futures and Options

Precious Metals vs Stocks

Futures contracts are agreements between two parties to buy or sell a certain amount of a commodity at a predetermined price on a specified date in the future. Options contracts give the holder the right, but not the obligation, to buy or sell a specific asset at a predetermined price on or before a specified date.

Investors should consider various factors, such as the current market conditions, the volatility level and the asset's liquidity when investing in precious metals through futures and options. Precious metals are generally considered more volatile than other assets, so they may provide higher potential returns but also come with increased risk.

Investors should also consider the liquidity of the underlying asset. Precious metals can be challenging to liquidate promptly, so investors should be aware of this when investing in this asset class.

In addition to the potential risks associated with investing in precious metals futures and options, investors should also understand the taxation implications. In general, gains from investing in futures and options are taxed as capital gains, with any losses treated as capital losses. It's important to consult with a qualified tax professional to ensure that you follow the correct tax procedures.

6. Investing in Precious Metals IRAs

Investing in a Precious Metals IRA can be an enriching experience. Not only do you get the stability and security of investing in physical precious metals, but you also get the tax advantages that come with it. With this type of account, you can store gold, silver, platinum or palladium in a secure vault and use your IRA funds to purchase these metals.

When setting up a Precious Metals IRA, there are a few things to consider. First, you'll need to find a reputable custodian to handle your investments. This is important because they will be responsible for keeping your metals safe and secure. You'll also need to decide which type of metal you want to invest in and the amount of money you are willing to invest.

Once you have established a custodian and decided on a metal, you can transfer funds from your existing IRA into your new Precious Metals IRA. This process is relatively straightforward and typically takes only a few days. After the funds have been transferred, you can purchase the metals of your choice and store them in the secure vault.

The benefits of investing in a Precious Metals IRA are numerous. You get to diversify your retirement portfolio and get the added benefit of not having to pay capital gains taxes on any profits you make. In addition, you can enjoy the peace of mind that comes with knowing your investments are backed by tangible assets.

If you're considering investing in a Precious Metals IRA, it's important to research and find an experienced custodian. Knowing that your metals are protected and secure will give you peace of mind. Finding a reputable Gold IRA company that handles all transactions is also important. We have the best Gold IRA firms we recommend in our article here.

Final Verdict

Investing in precious metals and stocks can be wise for diversifying portfolios. Precious metals offer an advantage over stocks because they are tangible assets that the stock market volatility cannot impact.

Additionally, precious metals have been proven to provide a hedge against inflation and currency devaluation and a secure, long-term investment. Although there is no guarantee of return on any investment, precious metals have traditionally been a safe bet for investors looking to secure their financial future.

It is important to remember that investing in precious metals can be a long-term investment. Investors should be prepared for volatility and the potential for no return or loss on their investment. However, for those looking for an alternative to stocks that don't carry the same risks associated with them, precious metals can provide a stable and secure investment to last you throughout your retirement years.

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