Gold is a rare commodity that isn’t tied to the stock market or any other type of investment, making it a great choice for anyone looking to diversify their portfolio. Gold prices may go up and down, but it’s a stable investment that holds value over the long term.
That’s why investing in gold is a good way to hedge against inflation and economic downturn. Of course, investing in gold has other benefits, too. Here are the reasons you might want to invest in gold.
Hedge Against Inflation
One way to protect yourself from inflation is to invest in assets that aren’t tied to the economy, like gold. As The Times of India explains, “Gold has shown positive results even during the economic downturn and market volatility.”
That makes gold an excellent way to hedge against inflation as a result. Gold prices may go up and down, but they are more stable than the value of a currency. When the value of money decreases, the price of gold tends to hold or go up.
Diversify Your Portfolio
When it comes to investing, gold is generally a smart way to diversify your portfolio. That’s because it isn’t tied to the stock market or any other type of investment. “When stock prices fall,” CNBC says, “gold prices tend to rise.”
Gold is often called a safe-haven investment for this reason. Investing in gold minimizes not only an investor’s risk exposure against inflation but also stock market volatility. So, gold has a place in a balanced investment portfolio.
Historically Performs Well
Gold is a rare commodity that’s been used as a form of currency and to make jewelry for centuries. It’s also a valuable investment with a strong history of performance.
“Gold has returned more than 560% to its investors” over the last 20 years, according to Gainesville Coins. This makes it a good long-term investment to include in your portfolio.
If you’re looking for a safe and stable investment, then there are several things that make gold a worthy choice to consider. But what’s the best way to invest in gold?
Ways To Invest in Gold
There are three primary ways to invest in gold: gold exchange-traded funds (ETFs), gold fund of funds (FoFs), and physical gold. Here’s a breakdown of each option.
- Gold ETFs are a popular way to invest in gold. An ETF is a basket of securities, like gold, stocks, or bonds. Gold ETFs track the price of gold closely and trade on exchanges, just like stocks. So, gold ETFs are easy to buy and sell.
- Gold FoFs are another way to invest in gold without having to buy and store physical gold. FoFs are pooled investment funds that invest in mutual funds and hedge funds. Gold FoFs are available from a variety of investment firms.
- Of course, physical gold is the other primary way to invest in the precious metal. You can buy gold bars and coins. Physical gold is a tangible asset. However, CNBC says physical gold is less liquid and costs money to store safely.
Your Investment Doesn’t Have to Be Big
Instead of investing a large lump sum, The Times of India recommends starting with “a small amount such as Rs 500 through regular monthly SIP in Gold FoFs,” for example. While this investment doesn’t look big in the beginning, the source says, “over the years you will enjoy its potential growth.”
So, how much of your portfolio should be in gold? Financial expert Jim Cramer tells CNBC that typically gold-related investments make up 5% of his portfolio. The source explains that “stocks and bonds are generally considered better retirement investments,” so gold should be one piece of a balanced portfolio.
The Bottom Line
Investing in gold has many benefits, including hedging against inflation, economic downturn, and stock market volatility. Of course, there are also other reasons to invest in gold. For instance, it’s a long-term investment that’s provided a significant return on investment to many investors over the years.
Gold has reliably held value throughout history. That’s why The Times of India says many families treasure gold as an asset, passing it down from one generation to the next. If you’re interested in gold investments, then consider investing in gold ETFs or FoFs. And buying physical gold is always an option.