Look beyond equities: Alternative investments in the form of strategic metals are a lesser-known but promising addition to a portfolio. They score points with purchasing power preservation and inflation protection.
"Never put all your eggs in one basket." This proverb illustrates the fundamental idea of portfolio diversification. In the complex world of investment, diversity is the cornerstone of a sound portfolio strategy. It has become particularly important in recent years: Epidemics, outbreaks of war and trade disputes cause a great deal of unrest on the financial and economic markets and cause individual asset classes to crash.
Diversification for financial stability
By spreading assets across different asset classes, the impact of market fluctuations is reduced. In the event of weakness in one area, positive results from other areas can offset potential losses. This not only creates stability, but also makes it possible to benefit from different economic conditions. Harry M. Markowitzwho was awarded the Nobel Prize in Economics in 1990 for his modern portfolio theory, describes the idea behind it as follows:
"A good portfolio is more than just a long list of good shares and bonds. It is a balanced unit that offers the investor opportunities and protection under a variety of possible circumstances."
It is not just the quantity that matters, but also the interaction between the various investments.
Diversity as a strength: strategic metals as an alternative investment
In addition to established asset classes such as cash, shares, bonds, gold and property, alternative investments are becoming increasingly relevant. These include works of art, vintage cars, whiskey and strategic commodities. Alternative investments should never dominate a portfolio, but only serve as an admixture. There are no universal guidelines for the weighting in a portfolio, as much depends on the individual risk appetite and personal investment goals of the private investor. In most cases, the recommendation is that they should make up 5 - 10 % of the total investment as an admixture.
The raw material group of Strategic metals is one of the most promising additions to a portfolio: Technology metals, rare earths and platinum group metals play an important role in modern technologies (e.g. semiconductor technology, renewable energies, automotive industry), but supply is usually critical.
With these advantages, strategic metals score highly as an addition to a portfolio:
- Supply and demand: Limited availability and growing industrial demand could lead to rising prices. This opens up long-term yield opportunities for private buyers.
- Long-term demand: Political and ecological goals such as the European "Green Deal" will drive demand for strategic metals for many years to come.
- Volatile supply chain situation: Crisis scenarios and political strategy games can complicate or cut off global supply routes. This can result in high price gains.
- Stability: Commodities have a physical material value that is independent of what happens on the stock market or currency market. On the one hand, this makes them less susceptible to crises and, on the other hand, they help maintain purchasing power and compensate for inflation. The choice of investment metal, the time of purchase and the holding period can therefore be decisive in determining how profitable and stable the investment is.
Diversification also applies to alternative investments
However, adding strategic metals to a portfolio alone is not enough: diversification within investment metals also makes sense. Private buyers should not just focus on one commodity, but should spread the investment amount across different metals. For example, they can choose between technology metals such as Gallium, Germanium and Hafnium and rare earths Dysprosium, Neodymium, Praseodymium and Terbium choose.
Private buyers who invest their money in strategic metals purchase them in physical form and sell them on to the processing industry at a later date. You can find out what you should look out for when buying investment metals in our blog post Buy strategic metals: These seven things to consider.
