Alternative Investments – A Look at Rare Earth Metals
Long term stock market investors have experienced a very frustrating period over the past two decades. Even through most markets have recovered from the lows of the financial crisis, most world stock markets have been relatively flat over the period with wild gyrations in between. Here at StrategicEquity.com, we’ve also seen a much stronger correlation between stocks, bonds, and other fixed income investments. The search for stability and diversification has become futile to many individual investors. Most can’t handle the extreme volatility and get shaken out during steep downturns. This has led to the average investor selling low and then inching their way back into stocks only after markets have stabilized at much higher prices. Investor performance has been further degraded by entire asset classes swinging up or down with each other. During the Financial Crisis of 2007-2009 it seemed that nearly every type of investment, from real estate to bonds, all fell in conjunction with each other. The only asset that bucked this stubborn trend was rare earth metals.
If you are looking to add diversity to your portfolio an investment in rare metals that must be mined and refined by mining companies have proven to be very effective. Not only have metals like gold, silver, and platinum shown independence from the movement of stock markets but they have provided a vital hedge against inflation. Many countries around the world are mired in debt. Their political leaders do not have the fortitude to stop the uncontrolled spending sprees and risk unpopularity amongst their electoral base. As a result the only way to keep up with the debt is to dilute their currencies by printing money. This keeps inflation high and erodes the real rate of return of stocks and bonds. Rare earth elements and precious metals are finite resources and not subject to the dilutive effects of currencies however.
It can be difficult for individual investors to meet the large capital requirements to purchase rare metals directly. Sometimes it makes more sense to get access indirectly through ownership in mining companies. You should remember that individual stocks are still subject to sudden movements. Environmental and permit issues can have positive or negative effects on individual companies. If you want to diversify your investment in mining companies consider investing in an Exchange Traded Fund (ETF) the focuses on the mining industry. Many analysts have pointed out how the mining sector as a whole has not kept pace with the performance of precious metals since the Financial Crisis and are good values.