As you plan to invest money in gold, consider investing in a well thought out strategy, securing your finances in a gold investment account, or a gold money account for better returns.
For ages, gold has been a valued investment. If not for its hedging power, people invest in gold for its intrinsic beauty and inherent value. The Indian and Chinese love for gold has not been hidden from the world, and similarly, many other individuals portray an immense love for the metal. While many have questioned the metal’s worth, many continue to probe the advantages and goodness of the metal, as they look for answers in studying the market and preparing investment strategies.
The article below is designed to answer the many unanswered questions, giving you food for thought, and enabling you to better plan your investment strategy. As you read on, ensure that you maintain a neutral mindset to understand how gold may work well for your portfolio.
Should you invest in gold?
For many people, investment in gold is a waste of time and money. If you have already concluded that an investment in gold is a waste, you may want to reconsider your thoughts after reading the following. Gold has multiple benefits for people who wish to use the opportunity and properties the metal offers.
- Hedge against Inflation and Liquidity
With any economy, inflation remains a constant struggle. Keeping inflation low in developing countries is not always easy, and as governments work towards low inflation rates, citizens should hedge themselves from the effects of high inflation rates. In times of inflation, money loses its purchasing power, hence depreciating the value of the currency, making it almost worthless. Over the long term, however, gold retains its value. Holding money in the form of gold will enable individuals to hedge themselves from the conditions of double-digit, high inflation.
- Portfolio Diversification
Several economists believe that gold is a highly effective portfolio diversifier. Gold is known to share a low, negative correlation with other significant financial asset classes. Investment advisors and other market consultants suggest that there is evidence that gold may share an inverse relationship with substantial financial assets when they are under stress. When equities and other financial instruments rapidly decrease in value or are excessively volatile, gold retains its value, and its price begins to increase.
Gold can safeguard investor portfolios from excessive volatility, hedging from risks, and reducing the instability in the market.
- Provides Liquidity
At times of crises, gold can be liquidated much faster than any other asset. In situations where individuals experience a cash crunch, requiring excess cash for emergencies, gold can be liquidated to cater to monetary needs. Gold loans can also be availed on gold holdings, making it more valuable to individuals. However, the redemption value on your gold depends on the purity and denomination of the gold you hold.
Gold Returns VS Equity Returns
Gold prices are negatively correlated with those of equities and other financial assets. However, it is essential to note that equity investments have performed better over the long run than gold investments. According to the great investor Warren Buffet, gold is a worthless asset, and investing in the metal is ‘stupid’. He says, “The one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money, and there will be a lot – and it’s a lot – it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.” Investing in physical gold, like gold bars and gold bullions, requires investors to pay hefty amounts for insurance and storage expenses. Moreover, what an investor earns depends solely on the value of the gold owned and the prevailing market price.
Investing in equity not only allows investors to share in the ownership of a company but also enables them to benefit from the organization’s earnings and profits. Gold, however, has no particular return on its holdings. One can sell their gold investments in the market at higher gold prices, hoping to earn significant amounts.
How much should you invest?
It is indeed beneficial to have a small amount of gold on your portfolio to increase diversity and hedge from prevalent market risks. Therefore, a standard 25% of your portfolio in gold investments is apt.
Financial planners suggest that when making gold investments, you should consider paper gold such as gold mining stocks, gold exchange-traded funds, gold mutual funds, or even invest in a gold investment account or a gold money account. You may choose to invest money in gold after thorough research and planning. It would help if you strategized your investments, being fully aware of your plans, cash flows, and budget. While gold is an effective diversifier, holding the asset increases net worth and financial value.