Gold is often considered a strong asset for diversifying your portfolio, based on its stability and performance compared to other markets.
The precious metal’s appeal tends to increase when investors face economic uncertainty and recession, as more people become interested in buying gold. But like any investment, you can benefit from gold most when you make a strategic allocation, not one based in fear.
“Other investors and institutions may have already done the same thing, which generally results in higher prices,” says Gary Watts, vice president and financial advisor at Wealth Enhancement Group. “The ideal time to build and allocate a model portfolio would be in less volatile and stressful times when emotions aren’t controlling decision-making.”
After all, he says, “Sailors outfit and provision their boats before the storm.”
But that doesn’t mean gold can’t be a worthwhile investment in any economic environment. If you’re thinking now is the right time for you to buy gold, start by requesting a free information kit to learn more about this unique opportunity.
How to invest in gold
Investing in gold can entail literally buying gold coins or bars, though that’s not necessarily the most liquid, secure or easiest way to invest.
“For the average person, owning a fund (i.e., an ETF or mutual fund) that invests in gold is probably the easiest way,” Watts says. “There are funds that invest in gold itself only, others that invest in a combination of metals, and others still that invest in mining operations and the like.”
Gold ETFs that hold gold within the fund don’t require you to actually store gold bars or coins yourself, but lets you benefit from the physical gold’s appreciating value. But some investors might prefer to stick to the stock market while still getting exposure to gold, and thus they could invest in equities of precious metals mining companies. These assets might also hold appeal by paying dividends.
Choosing between these options can depend on your goals, risk tolerance and current portfolio composition. You can learn more about gold investing by requesting a free information kit now.
Pros of investing in gold
Under the right circumstances, buying gold can have several advantages.
- Hedge against inflation: As inflation increases prices, purchasing power decreases. So, if you have cash, you’re effectively losing money. Gold, on the other hand, is often considered a hedge against inflation. As the value of the dollar goes down, value of gold may increase. Not everyone agrees and gold may not always rise when inflation goes up, but it could still be an investment factor.
- Safe haven for difficult economic conditions: Buying gold can potentially help investors get through uncertain economic conditions, considering the price might rise during these periods. For example, an analysis by the Federal Reserve Bank of Chicago comparing gold prices to a University of Michigan study of consumer expectations found that, as the proportion of consumers with pessimistic expectations goes up, the price of gold is positively correlated. That doesn’t mean gold will always go up when the economy looks shaky, but it could be good for those who plan ahead.
- Diversification: Some investors buy gold or buy silver (or both) as a way to build a diverse portfolio. Rather than having all of your money tied up in one asset class, spreading it around to different types of investments could potentially help you better manage risk and return. “Gold — or other precious metals — in the right allocation, can make sense in a balanced portfolio, but allocation always depends on a number of other factors like time horizon, investor experience, tolerance to volatility, cash flow needs, etc.,” says Watts.
If these are some of the benefits you’re looking for then start investing in gold today.
Cons of investing in gold
While gold can help add balance and security for some investors, there are also risks to watch out for.
- Potential performance lag over time: Gold might outpace other assets during specific periods, while not holding up as well to long-term price appreciation. If you’re trying to save for retirement, for example, putting too much money into gold could hold back long-term gains you would have gotten with stocks or bonds. That’s why it’s important to choose the right allocation.
- Investments based on fear: There can be a tendency to turn to this asset when markets get shaky, causing investors to make decisions based on fear, rather than on what’s best for their long-term success. “I’ve seen the gold question come up in every single market downturn since I started in this profession,” Watts says. “Too often, retail investors or DIY-ers respond with emotional decisions and end up hurting themselves…Panic and hope are not strategies.”
- Complexity: If you’re not already familiar with gold and the precious metals asset class as a whole, it can take time to get up to speed. Choosing this asset class over traditional stocks and bonds isn’t just a matter of picking which one you think will gain more. There are also considerations around risk, cash flow, taxes and more. So, adding this asset class can also add some complexity to your investment decisions that you should be prepared for — or discuss with an expert.
The bottom line
Buying gold can make sense for some investors, but it’s not a decision to make lightly. It has benefits for investors looking to diversify and protect their assets during periods of downturn, but it can also limit your earnings over time and perform differently than you might expect. Take time to consider your options. If you do want to invest in gold, make sure you know how it best fits into your overall investment strategy.
Learn more about your investment options below.