Gold is an iconic precious metal revered for both its beauty and as an investment tool against inflation and economic volatility. Additionally, many people turn to it as an effective hedge against future uncertainty in the form of inflation insurance policies or any other form of protection against economic collapse.
Physical gold bars and coins require storage and insurance costs; stocks can be traded instantly on the stock market at low transaction fees.
Safety
Gold is an asset that cannot be printed out of thin air, making it an appealing solution in times of financial instability and inflation. Some investors see gold as a hedge against inflation.
Physical gold tends not to fluctuate as much than stocks due to various market and economic forces, making it more appealing during turbulent markets while at the same time not providing high returns.
Physical gold purchases often incur shipping, insurance and storage costs that increase overall costs for investors. Shares in gold-related companies – like gold miners or refiners – tend to be cheaper. Or investors could look into investing through mutual funds or ETFs that invest in gold and other precious metals. Although mutual funds and ETFs might offer lower expenses per stock than individual stocks or ETFs do. When making either decision it is important that investors consider their goals, risk tolerance, time horizon and fee structures prior to investing either in physical gold or stocks
Value
Gold investment adds diversification and reduces risk. When one asset drops significantly in value, all others won’t fall simultaneously in value.
However, too much exposure to precious metals may hinder your portfolio’s returns and experts advise holding no more than 5-15% in hard assets such as coins and bullion.
Physical gold can be costly and requires special storage to protect it from theft. By purchasing shares in a gold mining company, however, you can profit from rising gold prices and earnings growth and boost your returns overall. When looking for such companies it’s important to find ones who take their Environmental, Social and Governance (ESG) practices seriously as this will increase returns further.
Liquidity
Gold can be an illiquid investment, creating complications when withdrawing your funds quickly from it. Furthermore, storage fees could add further expenses on top of its purchase price.
Gold stocks and funds provide more liquid investments due to their backing by real gold metal itself, plus the leveraged exposure provided by these investments allows even minor price movements in gold to lead to larger price changes in their share prices.
At its core, the best way to determine whether gold should be part of your portfolio is consulting an independent financial advisor. They can offer impartial advice about its benefits and assist with creating the appropriate role for it in your investment strategy. Generally, experts advise keeping gold as part of an investment portfolio in order to protect against inflation while acting as a counterweight against stocks.
Taxes
While physical gold can be bought directly from coin dealers and precious metals brokers, investing in gold-related securities that trade on major stock exchanges might make buying and selling it simpler. Such investments typically offer greater than just price returns as dividends may be received as well as possible growth of companies mining and refining it.
Tax-wise, physical gold is considered a collectible by the IRS. Any profits from its sale are taxed at up to 28% compared to 15% long-term capital gains tax rates that typically apply. Furthermore, its storage costs can become significant while leaving physical precious metals lying around poses theft risk.
Gold can add some unique advantages to a well-diversified investment portfolio, but should comprise no more than 5-10% of total assets. Prior to adding gold as part of your holdings, consult an impartial financial planner for advice regarding its inclusion and distribution among your assets.
