Making savvy investment decisions is critical to your long-term financial security and even to the legacy you leave behind for your loved ones. You understandably want to make wise investment purchases that will provide your loved ones with decades or even centuries of wealth and luxury. With this in mind, you may be wondering if you should invest in gold and how much of your portfolio should be allocated toward this investment.
The Pros of Investing in Gold
Gold is among the finest of precious metals, and it has been used for centuries in jewelry as well as in currency. Investment options have increased for most investors over the years. You may be able to invest in stocks, bonds, mutual funds, real estate and more. However, the wealthiest and most financially secure individuals have chosen to invest in gold at least partially in their portfolio. As you might imagine, there are both pros and cons associated with investing in this precious metal. These are among the top benefits associated with making a substantial gold investment.
1. When You Invest in Gold, It Retains Its Value
As an investor, you may be concerned about the possibility of many of your more lucrative investments losing value in the months or years to come. Of course, CDs and bonds are relatively safe investments, but they have a minimal return. In fact, they may barely keep pace with inflation in most cases. Gold, on the other hand, has proven that it can retain its value over centuries of history. It also typically outperforms other safe investment options, such as CDs and bonds. There is some exception to this, but you will find that the exceptions are very rare.
2. Gold Is a Hedge Against Both Inflation and Deflation
Both inflation and deflation can present different problems to investors. The good news is that gold holds up well in both types of market conditions. When the cost of living has risen historically, gold prices have also risen to keep pace with or even to beat inflation. In addition, when economic activity slowed historically, gold prices have increased. This is because investors have flocked to gold to preserve their assets. Altogether, this is a good investment vehicle for most economic climates.
3. Gold Performs Well in Times of Crisis and Uncertainty
Many stock investors have experienced sharp declines in the value of their portfolio when a sudden crisis emerged. Crises spur stock sell-offs. Many investors typically trade out of stocks during crises to invest in gold. This means that while the stock market crashes, gold values typically increase substantially. Gold is typically seen as a long-term investment. Therefore, you will see fewer people move out of gold when the market rebounds. Additional investment funds may be sourced from elsewhere to reinvest in the stock market. Gold purchases will usually remain in the investors’ possession to protect them against future market downturns.
4. The Power of Supply and Demand
Basic economic theory states that when demand increases for a product that is in fixed supply, prices will increase. More gold is being mined currently. However, the total amount of gold available at any one time is limited. More than that, the total amount available on the planet is finite. This means that the ever-increasing demand for gold will drive the price of this commodity even higher in the future. When choosing an investment, it is wise to choose commodities that are almost certain to increase in value in the future. Gold is one of those investments.
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The Cons of Investing in Gold
Just as there are significant benefits associated with investing in gold, there are also drawbacks. Before you invest in this precious metal with your purchase of bullion, coins or other investments, carefully analyze these points.
1. The Cost of Storage
You can purchase gold stock or shares in a gold mining company to invest in this industry. However, most people who invest in this fine commodity will buy bullion or coins. This makes gold a physical asset that you must be able to store in your possession in most cases. Some people will invest in a safe deposit box at a local bank, but there is an ongoing fee for this. Others will invest in a safe for their home. If you choose to keep your gold investment in a safe on your property, consider increasing your personal property insurance to cover the value of your investment. The last thing you want is for your gold investments to be stolen. Also, remember that gold is a relatively soft metal. The imprint or detail on the
If you choose to keep your gold investment in a safe on your property, consider increasing your personal property insurance to cover the value of your investment. The last thing you want is for your gold investments to be stolen. Also, remember that gold is a relatively soft metal. The imprint or detail on the bullions and coins must be carefully preserved if you want the gold to retain its full value over the years.
2. The Prevalence of Gold Scams
There are scams with all types of investments. Investors must learn to be savvy and to select the right individuals or companies to work with. When it comes to investing in gold, the unfortunate reality is that there is a significant prevalence of gold scams. For example, some companies may overvalue bullion and sell it to investors for a premium. Others may not sell them pure gold as they have advertised. These are only a few of the many types of scams that you may be subject to when you buy a hard commodity such as this. If you choose to purchase gold bars or coins, ensure that you make your purchase from a very reputable dealer.
3. It May Be a Fear-Based Investment
Because gold is often purchased in times of economic crisis and when inflation or deflation risks are high, this can be a fear-based investment. The smartest investors who regularly make wise investment decisions take the emotion out of their financial decisions. They carefully analyze the market, their portfolio, and their goals to determine the right moves to make. Fear-based investments can be wise in some cases, but they also have a tendency to be detrimental in many instances.
4. The Fees Can Be High
Another downside to consider before you invest in gold bars or coins are the related fees. You may pay shipping fees, transaction fees, appraisal fees and more for your investment. These fees are significantly higher on a dollar for dollar basis than other investments that you may be considering. If you plan to hold onto the gold for a lengthy period of time, you may earn the money back several times over. However, until the value of the gold increases substantially, you may be in the red waiting for your investment to make up for the cost.
All types of investments have pros and cons to consider. Most have costs associated with them as well as a specific expected return. When you are trying to decide if you should invest in gold at all or how much gold you should purchase, always keep your primary investment objectives and the diversity of your portfolio in mind. There is room in most portfolios for at least some gold. However, it is usually best for most investors to combine gold purchases with other types of investments to maximize growth and to minimize risk.