How much should I invest in gold? Is it actually necessary to consider investing in gold? Why do investors add gold to their retirement investment portfolios? Join me in today’s post in which I will be providing you with answers to the above questions. Read on till the end to discover more about this interesting topic.
Whenever gold seems to perform well, there is usually a rush to purchase more of this asset, with many investors staying hopeful that its price in the market will continue to rise. Generally, the fears about the stability of the U.S. dollar tend to push the gold prices higher. This has been the trend for quite some time and has led to an increase in the number of investors who are interested in holding gold and other IRA-approved precious metals.
However, before you decide that you will need to purchase gold right away, it would be a good idea to tread very carefully. Gold, like other assets, can rise or fall, hence you should not pour all your money into this shiny metal.
Why do people like gold very much?
We can better understand why gold is such a valued possession by taking a look at its history. For starters, gold has been valuable for thousands of years, which is unlike many of the currencies in the present-day world. Also, unlike the digital currencies and modes of payment, it is possible to touch gold.
It is easy to look at gold and immediately appreciate its appearance along with its value. It has intrinsic properties that make it valuable, such as the fact that it does not rust and the unique lustrous appearance that makes it suitable for use in the manufacture of jewelry.
It is worth noting, however, that the price movements of gold are not always based on its intrinsic values. It is, at times, affected by the investor’s perspective of how global markets are doing, and the state of the U.S. dollar.
Although gold has a long history, this does not mean that it should be the only choice for your portfolio. It has its upsides and downsides that ought to be considered before one allocates any of their hard-earned money to this asset.
Gold as a hedge against inflation
One of the greatest reasons to add gold to your portfolio is perhaps to ensure that you have a hedge against inflation. Gold has managed to perform quite well in its capacity as a value storage vehicle. Inflation has been known to gradually erode the purchasing power of the dollar, but adding gold to your portfolio can help you hedge against this loss of value.
Historically, the prices of gold seem to move in the opposite direction to the dollar, hence the weakening of the U.S. dollar is often accompanied by a strengthening in the price of gold. That said, even when the price of gold isn’t increasing at a fast rate, investing in gold is perceived as a decent approach to keep one’s portfolio value from declining due to inflation.
Investing in different stocks and bonds may not always provide sufficient diversity. This is why adding some gold to your portfolio can help you feel more confident. Gold prices generally have a negative correlation with the stock market ( i.e. gold prices move in the opposite direction of the stock market).
This means that a stock market crash is most likely to be accompanied by an increase in the price of gold. It, therefore, makes sense to add some gold to balance your portfolio, more so during retirement investment planning. Diversification of one’s portfolio through the addition of gold to one’s list of investments is a sound strategy to preserve one’s wealth.
How much should I invest in gold?
You need to structure your portfolio in such a way that it helps you achieve your long-term financial goals. Gold might have a place in such a portfolio since it has historically proven to be a great long-term investment. Experts, however, caution investors against investing all or a significantly high amount of money in gold. You might want to consider only having about 5% to 10 % of your entire portfolio held in gold.
The percentage of your funds that you allocate to gold will depend on your situation as well as risk tolerance. You may as such end up with a larger or smaller share of gold in your portfolio.
N.B: A wise man once said, do not put all your eggs in one basket, and this adage applies to investing in gold as well.
Is gold a necessary addition to your retirement investment portfolio?
Some investors believe that gold is not only a suitable hedge against inflation but is also a great asset when it comes to portfolio diversification. They know that gold has its intrinsic value, and this makes it worth purchasing or owning.
There are also those who are stockpiling gold against the collapse of the global economy and have their reasons for that. If you, however, suspect that we are headed to an economic apocalypse, then this might be the right time to consider things such as:
- How to hunt and fish
- Ways to grow a sustainable garden
- Stocking up on food and water.
Some investors also believe that the U.S. may return to the gold standard, which in my opinion is quite unlikely from happening. There is already so much paper money in circulation, that switching to a gold standard would be impractical and highly unlikely. The entire financial system would need to collapse to make way for such change to occur.
As you can, therefore, see it is hard to eliminate the role of the dollar in the present-day world, unless it is being replaced by other digital currencies such as cryptocurrencies. This means that it will always be a good idea to have some gold in your portfolio, to ensure that you are well-protected from the gradual decline in the buying power of the U.S. dollar.
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Frequently Asked Questions on “How much to invest in gold?”
1. Which is the most affordable way to purchase gold?
Purchasing physical gold will often come with high costs, owing to the expensive nature of gold. Many investors still proceed to purchase physical gold, due to their understanding that it has unique benefits over gold-based paper assets. If you want a cheap alternative to gain exposure to gold, then you may consider gold ETFs or mutual funds, though you should know that such paper assets may not protect you from a stock market crash.
2. How much gold should I have in my retirement investment portfolio in comparison to silver?
Choosing between gold and silver comes down to your preference. Some investors will turn to technical analysis tools to determine how much gold or silver they need, based on their unique financial objectives. There are those investors who swear by gold, no matter how the market is behaving, and this could mainly be due to the long history of gold as a store of value. To make a decision as to which asset you will hold more of, you need to educate yourself more about its pros and cons. You can greatly benefit from speaking to a precious metals investment expert to get a clear outline of what you can expect from purchasing either of the two assets.
3. How much gold can I purchase?
There are currently no limits on how much an individual investor can own. Over 187,000 metric tonnes of gold have been mined so far, and if you have a sufficient reserve of money, you can pick a phone and start convincing the owners of this gold to sell it to you. It is impossible to own all the gold in the world without causing total unrest on several dimensions, but you are not prohibited from buying as much of it as you want to.
4. How can I invest in gold?
There are many approaches to investing in gold, including :
- Purchasing physical gold and holding it through a Gold IRA
- Buying jewelry made of gold
- Purchasing gold stocks, ETFs, and mutual funds.
That will be all for today’s post on “how much should I invest in gold?” I hope that you found this post informative and that you now know how to distribute your funds when it comes to gaining exposure to the price movements of this rare asset. If you have any questions or concerns with regards to what we have discussed, drop them in the comments section and I will get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!