The basic strategy of Vanguard Precious Metals & Mining (VGPMX) is to invest at least 80% of assets in stocks of companies that explore, mine, fabricate, process or distribute metals or minerals.

The majority are in the gold, silver, platinum, diamonds and other precious metals and minerals businesses.

The fund can invest as much as 100% of assets in foreign securities. Formerly known as Gold & Precious Metals then simply Precious Metals, the fund's name was changed again in 2004.

Completely closed to new investment on June 28, 2002, it reopened with the new name, higher, $10,000 minimum and broader mandate in May 2004.

It closed again on Feb. 2, 2006. (Of course, subscribers to The Independent Adviser for Vanguard Investors know that "closed" doesn't always mean closed.)

Despite increasing diversification and a broader mission to invest in a wide variety of metals and mining stocks, this fund is no better fit for most investors now than it has been in the past. It tracks a very small market segment, is extremely volatile and can whipsaw the unprepared.

Not surprisingly then, owning this fund can really test your mettle.

Take 2006 for example. Up 47.2% in early May, the fund dropped over 26% in the following four weeks.

Or, consider the fund's MCL, or Maximum Cumulative Loss. Recovering from a devastating 63.8% drop that ended in August 1998, longtime shareholders were finally made whole in May 2002. Two months later they had lost another 27.6%.

That isn't to take away from manager Graham French's abilities. He takes a long view and tries to spread his bets across many companies.

But the mining industry continues to consolidate through mergers and acquisitions, making true diversification increasingly difficult.

Even back in 2006, French warned of the dangers in the industry, saying in an interview with TheStreet.com that over the previous five years or so mining companies "were prudent. There was very little mergers and acquisitions silliness."

French's complaint was that the prices being paid were too high and that companies were buying and merging simply to grow larger, without concern for whether it was in the best interests of shareholders.

The issue with funds that focus on miners is that the performance of mining stocks is leveraged to the price of the underlying commodity being pulled from the ground. Once a company is being paid enough to cover its costs of operations, any additional price increases tend to flow quite quickly to the bottom line.

However, the flip side is also true. As commodity prices fall closer to, or below the costs of production, earnings collapse and the stocks begin to become the proverbial lead balloons. I'd rather keep a bit more lift in my portfolio.

The BIG Question

And the big question for most investors should be, "How much of my portfolio do I really want to stake on this volatile sector?"

A 5% position would be large and still wouldn't protect you much if all your other holdings were tumbling.

Considering the huge risks associated with this sector, this fund is only for speculators, not investors. And even speculators shouldn't allocate more than 5% of their portfolio to it.

I know it's tempting to jump into funds like Precious Metals & Mining and Energy when gold and oil are hot. With gas prices rising every week, who wouldn't want a piece of the profits? But Vanguard has a much better way to profit from energy with less risk. You can find out all about it in The Independent Adviser for Vanguard Investors.