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How to Own Metals with No Downside RiskBy
Tuesday, May 17, 2011
Do you want to own gold and silver... but you can't stand the downside risk?
The downside risk is very real in metals... For example, the price of silver has fallen from near $50 to below $35 in less than three weeks. If you had invested $10,000 at the top, it would be worth less than $7,000 just three weeks later.
If you are seriously worried about the downside risk, I have a solution for you today...
This weekend, I spoke at the Global Currency Expo conference in stunning La Jolla, California. And I heard several new ideas that might interest you.
The first was EverBank's new Timeless Metals MarketSafe CD.
It's a bank CD, which means your principal (your initial investment) is 100% insured by the FDIC. So your downside risk is basically zero.
For your upside, instead of earning a tiny interest rate like a typical bank CD, you could earn up to 50% over the next five years.
Downside? Zero. Potential upside? 50%. I like those odds...
To me, investing is all about risk and reward. You'll often hear me say I want to have at least three times the potential reward as the amount of risk I'm taking. In this case, with downside risk at essentially zero, you have many times that ratio.
Here's how it works...
You buy the Timeless Metals MarketSafe CD. It has a five-year term, so your money is tied up for five years. It buys equal amounts of gold, silver, copper, platinum, and nickel. And in five years, you get your initial investment back, plus whatever the gain is in each of these commodities. The only catch is the gains are capped at 50%.
Let's consider some examples...
If you invest $10,000 in this CD, and each metal rises 25%, you get $12,500 back in five years. If each metal rises 50%, you get $15,000 back. If each metal goes up 75%, then you only get $15,000 back. (Remember, your gains are capped at 50%, for EACH metal.)
On the downside, if each metal falls by 50%, you still get your initial investment of $10,000 back.
What's your risk here?
It's only two things... time and opportunity cost. Your money is tied up for five years. If you need it early, there's an early withdrawal charge, and your principal is not guaranteed. As for opportunity cost... remember, your upside is capped at a 50% gain in each metal. If metal prices go to the moon, you don't participate in the moonshot.
Still, I don't know of many insured CDs with the potential for a 50% gain.
This product might not be right for everyone. But for people who simply can't afford the risk of their principal going down, but still want to participate in the metals markets, it might be worth checking out...
I'll share more ideas from La Jolla soon. But for now, here's a link to the details on this no-downside-risk metals CD.
Good investing,
Steve
Further Reading:
While most investors were shocked by the sudden plunge in silver a couple weeks ago, DailyWealth readers were not. We told you silver would drop... and we timed that warning to the day. If you had listened to our initial warning, you could have prevented a 25% loss on your investment.
"During wild times like this," Brian Hunt tells Growth Stock Wire readers, "it's important for silver owners to keep the 'long view' in mind. By that, I mean studying the long-term direction of the asset... rather than getting caught up in the day-to-day headlines." See how to use the "long view" to capture the biggest gains here: What the Crowd Is Missing About Silver.
Market NotesANOTHER BEARISH SIGN FOR COMMODITIES Everywhere we look, we see more signs to be cautious of the commodity markets right now...
For example, last week, we showed you the budding weakness in one of the great "bellwether" stocks of the commodity complex, Brazilian iron miner Vale. Today, we offer a look at the bigger picture in Brazilian stocks.
Brazil is one of the ultimate destinations for investors who want exposure to commodities. Its state-operated oil company Petrobras has found a series of giant offshore oilfields in the past decade. Brazil is a major producer of agricultural commodities like soybeans, cattle, corn, coffee, and sugar. It's a major producer of iron ore. Much of this production heads to China, Brazil's largest trading partner.
Below is a two-year chart of Brazil's benchmark stock index, the Bovespa. As you can see, this index enjoyed a big surge higher in 2009... a surge that stalled and moved sideways for over a year. And in just the past few weeks, the trend officially turned down when the index hit its lowest point in 10 months. It's another red flag flying over the commodity market.
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