In a world of elevated risks on multiple fronts, gold is a great way to diversify your portfolio. Unlike stocks, cryptocurrencies and other paper assets that can be hacked or erased, physical gold is tangible and indestructible.
It also has a low correlation to other investments, making it an ideal addition to your portfolio. Here are 10 reasons why you should consider investing in gold.
1. It’s a hedge against inflation
Inflation is a threat to your purchasing power and it can make your investments lose their value. Gold is a great hedge against inflation and has shown an impressive record of outperforming other assets in periods of high inflation.
The chart below shows the UK real interest rate (interest rates minus inflation) and gold prices over the last 50 years. The correlation between these two demonstrates how gold prices tend to rise in line with inflation, providing an excellent investment opportunity.
Investors shouldn’t wait for hyperinflation to invest in Gold but should consider the role it can play as a long-term store of value. This is because unlike stocks, bonds, cryptocurrencies or real estate, physical Gold doesn’t depend on earnings reports, dividends or interest payments to grow. It is also not subject to the same risks of counterparty default.
2. It’s a long-term store of value
Gold is one of the few assets that retains its value over long periods, making it a safe haven for investments during economic or political distress. Physical gold is also very liquid, meaning you can easily convert it into cash if needed, much more quickly than selling a stock in your brokerage account or even something like artwork, which would require a gallery or dealer to sell it for you.
Some investors look at gold as a potential hedge against inflation and to diversify their portfolios, given its low correlations with stocks and bonds. Others see it as a way to protect their savings in a time of rising uncertainty and volatility around the world. Regardless of your reasons, you can easily invest in gold through mutual funds or exchange-traded funds. They are available through online brokerages that offer commission-free trades.
3. It’s a diversifier
Gold’s performance is relatively uncorrelated with stocks and bonds, making it a good diversifier for your investment portfolio. However, since it’s not an income-producing asset, you should limit your allocation to gold to no more than 10% of your overall portfolio.
Historically, the highest returns on Gold are during periods of extreme low real interest rates, which can occur due to economic, monetary or geopolitical crises. In addition, Gold is an effective hedge against inflation.
A dollar’s worth of Gold has only increased by 6 cents in real terms over the last 10 years, but that’s still a decent hedge against inflation. Inflation is a fact of life and slowly erodes the purchasing power of your assets. Gold’s price tends to rise when inflation is high.
4. It’s a safe haven
Gold has been a safe haven for centuries, providing investors with peace of mind during economic uncertainty. While stocks, bonds, cryptocurrencies and real estate have historically lost value during tough times, gold has held its value.
Its low correlation with traditional assets makes it an ideal diversifier. When a portfolio is highly correlated, it can suffer from significant losses during market turmoil. Gold’s negative correlation with other assets helps to reduce risk and volatility.
Investors can purchase gold physically in the form of bullion, exchange-traded commodities or funds that track the spot price of the precious metal. This versatility and global recognition of the asset make it a suitable investment option for anyone looking to safeguard their wealth against geopolitical uncertainty. In the event of a global economic crisis, gold can be easily sold to cover expenses and mitigate risk.
5. It’s a store of wealth
Gold is a tangible asset that can be easily sold or traded for goods and services. Unlike real estate, which can take months to sell, and stocks, which are subject to market fluctuations, gold is liquid.
Gold has always been viewed as a store of wealth and can be used as a hedge against inflation. Gold also has a low correlation to stocks and bonds, making it an important part of any investment portfolio.
However, investing in gold can be expensive. It’s also hard to determine when it’s cheap because it doesn’t produce cash flow like a stock or mutual fund. Instead, investors are better off purchasing physical-backed exchange traded funds (ETFs). These are cheaper and easier to manage. They can be purchased through online brokerage apps or mutual fund platforms.
6. It’s a tax-free investment
Many investors look to gold for wealth preservation. It’s an ideal investment because it preserves purchasing power over time, unlike paper currency.
It also offers diversification, as it doesn’t often move in tandem with stocks and bonds. This helps reduce portfolio volatility.
However, it’s important to note that gold does not generate income like stocks or real estate. Therefore, it may not be an ideal investment for those seeking consistent cash flow.
Investors should also consider storage costs when investing in physical gold. This is an additional expense that can add up quickly. Another option is to invest in an ETF, which will help minimize storage and shipping fees. In addition, these funds are typically taxed at a lower capital gains rate than physical gold, which is taxed at 28%.
7. It’s a hedge against volatility
Many investors are concerned about the effects of inflation, and turning to gold is a popular way to protect their investments. Unlike other types of investments, such as stocks and real estate, gold is a tangible asset that can be held in your hand.
Its value tends to rise in times of inflation, which helps preserve the purchasing power of your wealth. This makes it an ideal hedge against inflation and a key component of a well-diversified portfolio.
Furthermore, gold is uncorrelated to conventional assets, meaning it can help reduce the volatility of a stock-based portfolio. In addition, storing gold overseas can be an effective way to diversify your investment portfolio beyond your home country. To learn more about how you can invest in gold and add it to your portfolio, request a free information kit.
8. It’s a hedge against currency depreciation
Gold fulfills one of the crucial promises that money makes – it preserves your purchasing power over time, unlike paper currencies. Since 1900, physical gold has outperformed all major currencies.
Investors can buy gold directly in the form of coins and bars, or through futures contracts. Both options come with costs that need to be considered, including insurance and storage.
Moreover, investing in gold does not offer the benefits of an income-generating investment like stocks and bonds. However, its low correlation with other investments means it can be a useful diversifier for portfolios. It can also protect against the potential loss of traditional assets. For these reasons, gold is a safe-haven investment that offers protection against financial turmoil. The demand for gold is driven by geopolitical uncertainty, which often triggers market volatility. It is an effective hedge against inflation, currency depreciation and global instability.
9. It’s a store of value
In a time when many investors are concerned about the economy, they may be considering adding gold to their portfolio. This precious metal offers a number of benefits that make it a good investment.
Unlike stocks and other paper assets, gold doesn’t depend on the smooth functioning of an entire system to retain its value. It can also be sold much more quickly than other assets, such as real estate or stocks, which can take months or years to sell.
The gold market has a proven track record of returns, liquidity and low correlations with other investments, making it a valuable diversifier. It’s also a great way to protect your wealth against inflation, stock market volatility and currency depreciation. It can even serve as a hedge against political and economic uncertainty.
10. It’s a safe haven
Gold is considered a safe haven investment because it holds its value during economic uncertainty. This makes it a good diversifier for your portfolio, as it can help reduce risk and volatility.
It also provides a hedge against currency depreciation. This is because gold tends to increase in price when currencies lose value. It also preserves purchasing power over the long term compared to paper currencies like the dollar.
However, before investing in gold, it’s important to understand the risks involved. Physical gold can be difficult to store and may require extra costs like storage and insurance. Moreover, it doesn’t produce cash flow, so you should only add it to your portfolio in small amounts and with caution. Additionally, gold futures and options are volatile and can be a bad fit for most investors. Consider instead investing in a gold ETF or mutual fund to avoid these risks.
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