From King Croesus in 550 BC to the present day, gold has been used as a form of currency and store of value, among other things. In fact, right up until the 1970s, the world reserve currency was actually pegged to the value of gold and rose and fell based on what gold was doing at the time. While we may not use gold in the same way as it used to be used (i.e., as a direct form of currency), it still holds an immeasurably important role in world economics for numerous reasons.
With the price of gold skyrocketing over the past year or so, it can seem tempting to jump aboard what can often seem like an infinite money glitch whereby you keep investing while watching your net worth rise as the green arrows indicating the movement of this precious metal seemingly never stop going up and to the right. However, investing with a fear of missing out attitude will only ever end up in disaster, and all savvy investors understand that to really build wealth as opposed to making money, you need a long-term approach and a fully diversified portfolio. This post is going to give you the lowdown on gold investments and offer a few valuable tips to help you do both of those things so that you can weather whatever financial storms might hit the world economy in the future.
Importance Of Gold In Portfolios
As we touched upon in the intro, gold should be looked at as only one component of a well-diversified portfolio rather than in isolation. In reality, this means avoiding liquidating your assets and putting them all into gold. In fact, gold as an investment massively underperforms other types of investment, such as stocks and real estate, but where it shines is a store of value that can be easily liquidated when required. As you can see, gold 401k said this in their review of Preserve Gold: navigating this world can be daunting, to say the least! Consequently, you need to put in some due diligence before adding it to your other investments. The reason it can be challenging to consider where it lies in your portfolio is due to the complexity of the market in general and the sheer number of vehicles you can use to invest in particular.
Types Of Gold Investments Available
So, let’s say you’ve come to the conclusion that you really want to add gold in some form to your existing investments, but the next question alluded to in the previous point is, where to begin? There are myriad platforms and vehicles you can utilize to place your money into, but each will offer different pros and cons depending on how they go about servicing your requests. Some options include:
- Physical: When one thinks of buying gold, it’s likely that images of bars and bullion will conjure up within your mind’s eye. This is perfectly valid as a lot of trading will involve the use of physical gold, often in the form of bars ranging in size and weight. Buying up physical gold is a great way to ensure that you have the asset on hand at all times and can use it without having to go through an intermediary, plus the request fees they charge. The primary downside is storage, as you will likely have to invest in a high-quality safety box or a costly deposit box at a bank. You can also hold it as jewelry, but you will typically pay a premium for the smithing involved, which may not accurately represent the price of the gold itself.
- ETFs: If you simply want to dip your toe in the market, then a gold ETF could be your best bet. They will track the market on your behalf and make it far simpler to invest a certain amount of money into something that does much of the work for you. They do, however, charge a small fee to operate.
- Trading instruments: Just like other commodities, gold can be traded via the use of instruments such as futures. The upside is that you can make more money than merely only gold, but the downside is these are complex instruments to learn, and you risk losing everything.
- Digital gold: This is somewhat similar to other forms of gold investments, except you can usually buy and sell smaller fractions, making it more accessible to the average Joe. The major con is that if you choose an unreputable platform, you might end up with nothing to show for your investment.
Evaluating Gold Market Trends
As with any sort of investment, trying to predict the future is a mug’s game in that you might be right 50% of the time and wrong the other 50%, thus canceling out any gains you might have made from a lucky guess. Nevertheless, there are certain things that do have an effect on the price of gold, ranging from the slightly more innocuous things like interest rates to the more severe ones like war and pandemics. Because you will never be able to accurately predict a downturn to dump your money into, followed by an upturn if you want to invest in gold, right now is the time to do so.
Long-Term Strategies For Gold Investment
Just as with any form of investment, you really need to look at it from a long-term perspective. In fact, in some ways, this is a more pertinent point when it comes to gold than other options since the idea is to use it to store wealth rather than necessarily increase it. So, what does this mean in practice? Well, you should avoid buying and selling it as you might a security (unless you trade options on it as discussed earlier) since increases are only incremental. Even when the price rises due to some kind of disturbance in the world (war, financial meltdowns, inflation, etc.), these can flatten out or even recede once things get back on track. Instead, you should allocate a portion of your money to it and let it sit there until the time you might need it.
Gold is an interesting form of investment because it isn’t necessarily what most people believe it to be. Nonetheless, while you almost certainly won’t make as much money from it as you might from investing in the next Tesla, it remains a great way to keep your portfolio balanced and a hedge against human nature.
