Liz Koh: Traps of precious metals

By Liz Koh


The past 10 years have been a difficult time for investors.

We've seen the bursting of the "dotcom bubble" in early 2000, the Japanese financial crisis, the effects of terrorism on market confidence, the Global Financial Crisis, the collapse of finance companies and the property market and, more recently, the downfall of European economies.

In the midst of this turmoil, investors sought a safe haven in the banks only to see interest rates fall. Of the four traditional asset classes - cash, fixed interest, property and shares - none has been left unaffected by these adverse events.

It is little wonder then that there is increased interest in investing in gold and silver bullion. internet marketers have raced to develop online "shops" for precious metal investments. Promoters disseminate information which taps into the two key drivers of investment behaviour: fear and greed. Their key messages are:

"Invest in gold and silver, because we are on the verge of a global financial collapse"; "Precious metals are much safer than any other form of investment because you can hold them in physical form"; "Get in quick, because prices are going up fast".

History shows investments made on the basis of fear or greed are susceptible to failure because they lead to irrational behaviour, such as buying or selling at the wrong time or investing too heavily in one asset class. This makes a great breeding ground for scaremongers who have an ulterior motive - to line their own pockets. Including precious metals in your portfolio, either in physical form or in paper form through an exchange traded fund, can help diversify your investments, but the two golden rules apply: don't put too many eggs in one basket and be aware that high returns imply high risk.

Liz Koh is an authorised financial adviser. The advice given here is general and doesn't constitute specific advice to any person. A free disclosure statement can be obtained by calling 0800 273 847.

- Hamilton News

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