Gold can add diversity and protection against inflation to your portfolio. Find out how you can integrate it into your investing mix.
However, purchasing gold simply to hedge against inflation should not be your primary goal; stocks have always outshone gold over any given time period.
1. It’s a safe haven
Many investors view gold as a diversifier and potential hedge against inflation, either directly via coins, bullion and jewelry or indirectly via mutual funds, exchange-traded funds (ETFs) and gold mining stocks. But their returns vary widely over time frames – stocks tend to outperform gold when considering shorter time horizons.
Gold investment shouldn’t be seen as a bad idea; it offers several key benefits, including being an economic safety net and wealth preservation mechanism. But investing in stocks could provide better long-term growth potential; gold doesn’t generate income, meaning dividends won’t accrue like stocks do; so its use as an add-on should only ever be done as part of an overall portfolio strategy – tech stock growth drove far greater NASDAQ gains this year compared to gold or global markets gains.
2. It’s a hedge against inflation
Gold has historically correlated with inflation, providing investors a hedge against rising prices and often serving as a safe-haven investment during times of economic turbulence or instability.
History proves, however, that gold’s correlation with inflation is not unquestionable. During the Great Recession when inflation ran high, investors fled risky equities in favour of safer options like gold.
Physical gold requires storage costs, while trading futures or options on it speculatively could reduce its returns significantly. Therefore, if steady income is what you seek then gold may not be an appropriate addition to your portfolio.
ETFs and mutual funds offer long-term capital appreciation potential while limiting volatility and market risks. All forms of investing carry their own set of risks; any decision should be guided by advice from an experienced advisor.
3. It’s a store of value
Gold investments pose their own set of unique risks. No matter whether it be physical gold, stocks, ETFs and mutual funds or more speculative futures and options contracts – understanding your individual risk tolerance is vital in successfully investing.
Gold has long been considered an indestructible store of value. This makes it an attractive alternative to paper assets like stocks and bonds which may fluctuate significantly due to market changes.
Long-term investing requires an understanding that gold does not pay dividends; thus a prudent investor may look for other opportunities in their portfolio that provide regular income streams such as stocks that pay out dividends – something gold cannot. Dividend-paying stocks may provide much-needed liquidity and steady returns in your overall investment mix.
4. It’s a form of insurance
If you’re concerned about economic changes, gold may offer some protection from inflation and market instability – though in reality its short-term performance can be just as volatile.
Gold has historically had lower peak-to-trough loss ratios than most stock indices and experienced less severe drawdowns than stocks; however, over time it does not deliver as high of returns than stocks do.
Gold can help your portfolio achieve the ideal balance of risk and return. When building your investment portfolio, it’s essential to take into account time horizon, experience, and risk tolerance when creating your strategy. Request our free investors kit now to explore all your options; gold may just fit right in! Then choose how much gold to add according to your needs and financial goals – never ignore its significance!