Gold in Your Portfolio? Add Some Shine! ( Mutual Funds )..Add Tangibles to That Paper Portfolio

Paul S. Lalley wordsinc at aol.com

Are you aselfdirected investor? Chances areif youre
reading thisyou do manage at least some portion of your asset
portfolio. Congratulations for taking the lead to abrighter
future. No one is going to look after your investments as
carefully as you will.

As your own Director of Investmentsyoure familiar with the
basics of wealth building the tried and true axioms of prudent
investing. You dont speculateyou dont gamble and you never
listen to your brotherinlaws tips. Another good move. There
are gamblers and there are investorsand over the long term,
the investors have proven to be the winners in the get rich
sweepstakes.

DiversifyDiversifyDiversify

One of the fundamental fundamentals of conservative investing
is diversificationorin other wordsdont put all of your
eggs in one basket. You wouldnt put all of your nest egg into
one company would you? Orone mutual or managed fund? Noof
course not. Even the bluest of blue chip companies have their
ups and downs. IBMakaBig Bluehas sold at over $USD120 a
share. In 02it sold at below $USD60. Had you put all of your
eggs in that basket you would have lost abasket full of cash.

Diversification is simply amatter of spreading the risk
around. You can do that buying shares of individual companies in
different industries agood drug companyaconsumer goods
behemothheavy manufacturingmediaand so on.

Instant Diversification

Many individual investors have turned to mutual or managed
fundswhich offer varying degrees of diversification. Broad
market fundsVanguards Windsor fund or Fidelitys Magellan
fundare good examples of popularbroad market funds.

Balanced mutual funds offer expanded diversification by holding
both stocks and bondswhich usually move in opposite directions
during market swings. Sowhen the stocks are doing wellthe
bond portion of the portfolio will lag and viceversa.

There are sector funds which narrow diversification to asingle
sector of the economy. There are exchangetraded funds (ETFs)
that are built like mutuals but are traded like stocks.

There are indexed bond fundsjunk bond fundsfunds that
specialize in aparticular geographic regionor even asingle
country. There are CDsgovernment bondsasset allocation funds
and more. In facttheres afund or investment vehicle for just
about any wealthbuilding strategy you could devise.

But what do all of these investment vehicles have in common
the stocksfundsbonds and such? Theyre all paper assets. Oh
sureyouve diversified through fundsdeveloping your own
portfoliobut all of your assets are still in paper. Sothe
question becomes: are you diversified enough!?

Tangible vs. Paper Assets

The alternative to paper assets is tangible assets things you
can toucheathold in your hand and even live in! Thats
rightyour home perhaps your most valuable asset is a
tangible. Its an investment in which you live. In factreal
estate ownership is often the fast track approach to increasing
personal wealth. Donald Trump didnt work his way to wealthhe
bought and sold real estateone of the best tangibles available
to the average investor.

But property ownership comes with its own attendant headaches.
Tenant calls at 3:00 AMupkeepdeadbeats and other hassles
prevent the average investor from moving into real estate. Real
estate isnt always liquid and you have to paint the darn thing!

If Pork Bellies Dont Suit YouBuy Gold

Which brings us to commodity investing putting some of your
portfolio into tangibles that dont wake you in the middle of
the night because the furnace conked out. Nowbefore you run
screaming from the room at the very thought of buying pork belly
futures and other exotic investment vehiclesthats not what
were talking about here. No pork belliescottonwoodno
cattlewheat or sorghum. Nobody even knows what sorghum is!

But everyone knows what gold is. And silver and platinum. These
are precious metals that have served as currencyor the
foundation for paper moneysince our ancestors were chasing
mastodons across the plains. In the form of coins or ingots
(blocks or bars)you can hold these metals in your handbury
them in the backyard or keep them in asafe deposit box.
Precious metals are the precious darlings among commodity
traders.

The charts that track the price of gold over a30year period,
from 1968 until 1999. You can see that30 years agogold was
selling for about $USD90 the ounce. Ohthen came the big runup
in the late 70s and early 80s when gold spiked at close to
$USD700 the ounce and people were lined up outside of coin and
jewelry shopsall around the worldselling their old bracelets
for historically high prices.

But most economists consider the 1980 spike an anomaly.
Rememberthis was the eraof 20% home mortgageshigh inflation
and avery worried world. Whats more important in this chart
are the figures from 1986 forward. Notice that since that time,
gold has traded in afairly tight rangefrom ahigh of USD$480
to around USD$290. During most of that timethe trading range
was even narrower.

Portfolio Ballast

Goldand other precious metalsprovide ballast for your
portfolio. Prices are closely tied to inflation rateswith ups
and downs more afactor of stock market uncertainty rather than
the usual driver of commodity prices good old supply and
demand. When other markets become edgybecause of world events,
for examplemany investors move aportion of their portfolios
into gold and other precious metals as ahedge against falling
stock prices.

Diversifying asmall portion of your portfolio into precious
metals better equips you to ride out the peaks and valleys of
stock market performances. It protects your paper assets by
providing price stability over the longterm. Andit moves some
of your wealth out of paper and in to tangibles.

How and How Much?

For most conservative investorsasmall amount12% of your
total portfolioshould be in tangibles like goldsilver and
platinum. Andthe most conservative means of holding precious
metals? Coins. More specificallycoins in small denominations.

Through any reputable precious metals dealeryou can purchase
Chinese PandasAustralian NuggetsGibraltar Royalsthe famous
South African Krugerrands and Canadian Maples. Canadian Maples
are available in denominations as small as onetenth ounce of
pure goldselling at less than $50 each at the moment.

Holding precious metals provides diversification out pf paper
into tangible assets. It adds price stability to your portfolio
by acting as ballast during choppy times in the stock markets.
Gold prices tend to follow inflation ratesserving as ahedge
against inflation creep in your portfolio. And one other
important benefit your investment appreciates tax free. You
arent hit with yearly taxes on dividendsinterest or capital
gains. The value of your precious metal holdings appreciates tax
free.

Andwhile goldsilverplatinum and other commodity
investments arent for everyonethey can help many investors in
many ways. But rememberalittle bit goes along way so start
smallbuild gradually and let gold and silver put alittle
shine on your portfolio.







About the author:
Paul S. Lalley is alongtime freelance author in the arenas of
investing and personal finance. His articles and newsletters
appear on numerous web sites. You can reach Paul at
wordsinc at aol.com.

((( top mutual funds )))
-hqbhyc