Add Glitter to Your Portfolio

It's true that all that glitters isn't gold; silver can also work to keep your portfolio steady during choppy times. Gold and silver prices don't typically rise and fall in concert with stocks and bonds, and they're considered good hedges against inflation and protection against the falling value of the dollar.

You can forget about hoarding Krugerrands in your safe-deposit box, thanks to exchange-traded funds. Buying a share of streetTracks Gold Shares fund (symbol GLD) gives you ownership of roughly one-tenth of an ounce of gold bullion for about $64. A share of iShares Silver Trust (SLV) goes for $130 and entitles you to roughly 10 ounces of silver.

Some caveats are in order, however. Although gold and silver prices aren't linked to stocks and bonds, the metals can be very volatile themselves. In June 2006, shares of the silver ETF plunged 21% in about two weeks, though they later recovered. You wouldn't want to put more than about 5% of your portfolio into these ETFs.

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Also keep tax issues in mind. Gold and silver are considered collectibles, and capital gains on these ETFs are taxed at a 28% rate. Even if you hold the shares for more than a year, this investment isn't eligible for the 15% long-term capital-gains rate. So hold precious metals in a tax-deferred retirement account, if you can.

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