During periods of economic instability, many investors will opt to buy gold as opposed to any other assets.
This is because gold is renowned for being a safe haven for investors, offering a wide breadth of protection and security.
It has been known to be one of the best investments to protect wealth while potentially making profit and returns during periods that are economically uncertain.
However, in order to ascertain whether gold is a worthwhile investment for your individual portfolio, you will need to know the reasons why people invest in it in the first place before you add this yellow metal to your own portfolio.
What Place Does Gold Have In An Investment Portfolio?
More savvy investors will be aware of the need for having physical gold as a key part of their balanced portfolio of investments.
Despite the fact that gold may have few practical uses, many investors will see it as a crucial asset due to the intrinsic value of the metal itself.
This is a value that cannot be replicated in most traditional forms of currency.
Due to this, many investors will purchase gold whenever they become nervous about other assets, or when high inflation rates have been forecasted.
Thus, physical gold has become an intrinsic part of many people’s investment portfolios. This is the best means of providing oneself with diversified wealth within a portfolio.
Mike Loewengart, the vice president of E-trade has stated that more diversified portfolios provide a “satellite position” for investors who can mitigate risks accordingly.
You should avoid abandoning your long-term investments due to a Stock Market downturn. Purchasing gold is a great way of providing you with insurance during tumultuous times.
This is because gold is considered to be a hedging asset that helps to diversify a portfolio and reduce the impact of external factors like the drop of stock prices.
What % Of My Investment Portfolio Should I Allocate To Gold?
This is a contestable topic for most investors who are hotly passionate about the risks and rewards within the stock market.
Thus, there is no conclusive answer to this question.
Some professionals suggest investing up to 10% of your assets in gold bullion (see also our guide to cashing in gold bullion). Others have stated that 20% Is more advisable.
Another approach that can impact the percentage of gold that you should invest in, is to conduct accurate measurements of the worldwide financial assets that are represented in gold bullion (see also ‘How Much Does A Gold Bullion Weigh?‘).
The World Gold Council has stated that all of the mined gold in the world equates to $7.5 trillion at present.
This represents approximately 4% of the combined value of bonds, global stock, and gold market.
Thus, 4% is a great place to start when allocating gold to your portfolio.
Regularly rebalancing your investment portfolio is also advised, and this requires you to buy and sell gold (see also ‘Is It Worth It To Buy Gold In 2022?‘) on a regular basis.
Why Should I Think In Value As Opposed To Percentages?
Thinking in terms of percentages is not always the best way to approach your investment portfolio.
This is because, if the financial markets crash entirely, you will need access to concrete numbers as opposed to percentages.
Thus, you should always consider the fact that gold is typically bought to be resold in the future. You can then convert this value into a vacation home, or supplementing your children’s college fees.
You should ask yourself the question as to whether the precious metals that you are holding would be sufficient to support you during a financial crisis and calculate their numeric value accordingly.
To conclude, while physical gold is traditionally considered a safe haven, you should only allocate a certain percentage of your investment portfolio to this precious metal.
Investing in gold is undoubtedly a great means of providing enhanced dimensions to your wealth portfolio, and thus, you should consider investing 10% of your wealth into gold.
The vast majority of investors will choose to allocate more of their wealth at a future date, however, 4-10% is a perfect starting point.
Investors should be encouraged to diversify their portfolio and spread their wealth as much as possible. This is because diversification is the best and most intelligent means of growing one’s wealth.
Similarly to how property is a great means of investment, gold is also considered to be a solid and secure form of investment.
It is always advisable to avoid placing all of your eggs into one basket by only investing in this precious metal alone.
This is because investing in gold is far more useful when you are doing so in order to hedge other investments.
Spreading your investment portfolio across a wide range of precious metals, stocks, and property investments is the wisest, low-risk means of managing your investment portfolio.
If there is a financial crisis or stocks are underperforming, it is likely that the price of gold will increase due to more people investing in it as a safer asset.
However, it is worth noting that if your short-term investments are looking positive, then you should keep your gold investments limited, as the price of gold may suffer whenever the economy begins to recover and grow again.
It is highly unlikely that there will be a situation in which all investments grow at the same time.
This is why the most successful investors will be trained in identifying the best markets to invest in at the right moment.
Owning physical gold is always a great means of balancing your investments, and it also makes a great long-term investment. Thus, there is never a bad time to invest in gold bullion (see also ‘What Is Bullion Gold?‘).
If you are seeking a secure means of investing your money, and spreading your assets accordingly, then you should definitely consider investing in gold today.