Gold has played a role in many cultures throughout history and continues to be revered as a symbol of wealth. It is also seen as a safe haven asset during volatile economic times.
Investors are often looking for investment avenues that may protect their capital and give them returns. Gold ticks both boxes and offers the added benefit of physical ownership.
It’s a Precious Metal
Gold is a precious metal, which means it has value and rarity. As a result, it has served as an investment and store of wealth since ancient times. Whether in the form of physical bars and coins or investments like exchange-traded funds (ETFs), gold is a great way to diversify your portfolio.
During periods of economic turmoil, gold tends to increase in value because it’s viewed as a safe haven. It also preserves purchasing power over time, unlike paper currencies that lose value over time due to inflation.
Moreover, compared to other investment assets, gold is low-risk. It moves independently of other traditional financial assets and doesn’t correlate with them as much, which can help mitigate risk exposure in a portfolio. However, it’s important to remember that gold is not an income-generating asset and will not provide a return on your investment in the same way that stocks or bonds can. For this reason, it’s typically best to hold around 5-10% of a portfolio in gold, depending on your investment goals. Gold can help hedge against inflation and provide stability during uncertain times, but it’s not meant to be a short-term investment. In fact, some investors choose to purchase gold as a way to leave behind an inheritance for their family members.
It’s a Stable Investment
Gold has been sought after and valued for centuries because it is one of the most stable investments. It is also a very liquid asset, meaning you can easily sell it or convert it to cash. This makes it a great investment to add to your portfolio as you seek to diversify your holdings and hedge against inflation.
Unlike stocks, bonds and other paper assets, gold doesn’t have a high correlation with traditional financial markets, which means that it is less likely to drop in value during periods of uncertainty or market volatility. Because of this, many investors choose to hold a small percentage of their investments in gold as a way to reduce risk and potentially improve their long-term returns.
There are several ways to invest in gold, including physical bars and coins and gold-backed securities like mutual funds and exchange-traded funds (ETFs). But remember that adding gold to your portfolio can increase storage costs and capital gains taxes. And since it doesn’t produce dividends or interest, you should only use gold as a small percentage of your overall portfolio. You should also make sure you can find safe storage for your physical gold, as you’ll need to protect it from theft or other risks.
It’s a Value Storage Vehicle
Gold is valuable and can be stored in a small amount of space, making it an easy and affordable way to store value. It also has the added benefit of not having any counterparty risk, unlike your savings in a bank or shares in a company.
Historically, gold has performed well during periods of inflation. This is because the purchasing power of paper currency decreases during these times, so investors seek hard assets like gold that won’t depreciate as quickly.
Additionally, gold prices tend to rise during periods of geopolitical turmoil, as investors seek safe-haven investments to protect against economic instability. If you’re aware of the political climate and can identify when a downturn is coming, you can potentially buy gold at a lower price and sell it at a higher price for a profit.
It’s important to note that investing in physical gold does come with storage costs and capital gains taxes, so it should only make up a portion of your portfolio. Most advisors recommend no more than 10% of your portfolio be dedicated to gold, to leave room for income-generating assets that can help you grow your nest egg over time.
It’s a Diversifier
With current economic uncertainty and rising risks, investors need to think about diversifying their portfolio. Adding gold investments to your portfolio can help reduce overall risk exposure and improve long-term returns. An Interview with Augusta’s CEO provides you with a good background on gold investments that may help you learn the field.
The precious metal has a low correlation with traditional financial assets like stocks and bonds. This means that during periods of uncertainty and market turbulence, gold’s price tends to move independently of other assets, offering an effective portfolio diversifier.
In addition to its role as a portfolio diversifier, gold also acts as a hedge during inflationary periods and market downturns. With central banks around the world enacting policies to keep interest rates low, inflation has been on the rise. This is driving investment demand for gold, which has historically risen during periods of inflation.
When considering how much of your portfolio should be allocated to gold, consider your investment goals and time horizon. A smaller allocation, such as 5-10%, is a good starting point. As you save for your financial goals and continue to invest regularly, you can increase your portfolio’s allocation to gold investments.
It’s a Security
Gold is well known for its role as a store of value and investment asset. It has a long history of outperforming the stock market and other assets during periods of economic uncertainty or high inflation. It has an inverse relationship with the dollar, so when the greenback weakens, gold tends to rise.
Investors also look at gold as a way to hedge against inflation, since it’s often less affected by global economies and recessions than many other commodities. It can also act as a currency substitute during times of crisis, and it’s traditionally been used as an engagement and wedding gift.
According to Ray Dalio, billionaire investor and founder of one of the world’s largest, and most profitable, hedge funds, Bridgewater Associates, investors should allocate approximately 7.5% of their investments to gold. Investors can buy physical gold coins or bars, futures contracts and exchange-traded funds (ETFs) to add the precious metal to their portfolios. However, these options come with storage costs and capital gains taxes, which can offset their benefits. In addition, purchasing and storing physical gold may be impractical for some investors. In those cases, investors can still diversify their portfolios with gold-related stocks and ETFs.
It’s a Liquid Asset
Gold is considered a liquid asset because it’s easily tradable. It’s also highly recognizable as it packs more value into a small space than a stack of cash or a used piece of furniture. Gold is also marketable, meaning that there’s always someone willing to buy it. Physical gold investments like bars and coins come with storage costs, making fees, and purity-related expenses, which can eat into your portfolio’s return. On the other hand, investing in a gold fund removes all those hassles.
Gold’s price often increases when other investments lose value, as has been the case during periods of political and economic turbulence. It also acts as a hedge against inflation, which can reduce the buying power of paper currencies. This is why investors who are unsure about the future of the world’s major currencies should have some exposure to gold.
Experts recommend keeping a maximum of 5-10% of your portfolio in gold. This gives you enough room for investments that generate income, such as stocks and bonds. If you’re considering adding gold to your portfolio, speak with a Gerrards advisor to learn about your options and what percentage of your portfolio would be appropriate for this investment.
It’s a Low-Risk Investment
Adding gold to your investment portfolio can help you diversify and reduce risk by balancing out volatile stocks or other assets. However, it’s important to remember that gold is not a high-yield investment; you won’t earn dividends or interest on your physical or paper assets.
That doesn’t mean it’s not a good option, though. It’s just that the price of gold may fluctuate over time, so you should expect some volatility when investing in gold. Unlike stock market and real estate investments, which can be quite volatile as well, physical gold will not crash drastically like those other assets.
When viewed over a longer period of time, gold has historically outperformed the stock market and other traditional assets. This is particularly true in times of geopolitical instability, where gold’s value tends to increase. Investing in gold can also diversify your SMSF’s portfolio, and it is one of the best ways to protect against a downturn in the global economy. If you’re interested in diversifying your SMSF portfolio with gold, consider purchasing a gold exchange-traded commodity or mutual fund. These options can offer you liquidity and a range of legal protections. They can also be less expensive than buying and storing physical gold bullion yourself.