Should I Buy Gold?
Investors often ask me, "Should I buy gold?" The answer is simple, in my opinion: Gold should be a part of every investor's portfolio. If you believe gold is going to appreciate short term or not is a matter for speculators, but smart investors who desire a diversified portfolio would want to own gold for its protective qualities. Gold is an excellent diversifier, and it offers protection against many adverse events available, as we will discuss below.
Why must I Buy Gold?
Gold adds another layer to some portfolio filled with stocks and bonds. Gold is really a completely different asset class than stocks are. The ETF that trades like a stock behaves like gold because it is tied to the price of bullion. In comparison to the stock market, gold has behaved in a roughly inverse fashion to the stock market since 1971 when the gold standard was abandoned. For traditional buy and hold investors, gold can provide returns when the stock market underperforms.
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Gold Offers Protection of Value
Gold protects against inflation. Inflation occurs when the money supply is increased, causing each unit of currency being worth less. Then this happens, prices for services and goods will rise. This will cause the buying price of gold to rise as well, as it will take more of the dollars (which are each worth less as a result of inflation) to buy an ounce of gold. The stronger the inflation, the faster gold will rise. Many investors keep some gold inside their portfolio for just this reason.
Gold Investors are ready for Disasters
Since the economy of each and every nation (and the worldwide economy) is based on trust, it can collapse when that trust is eroded. Consider this: the paper that money is printed on isn't worth anything. It is worth value due to the trust that people have in the government and the economic system. When a nation defaults on its debt, the cash becomes worthless-it is literally not definitely worth the paper on which it is printed. Gold, however, will always be worth something. In this way, it really is currency. So, some people like to have gold around as a protection against a bank failure, a war, riots, or severe political climate changes or any other disaster that might cause a currency decline or failure. Indeed, history shows that when a nation is facing war, economic or political uncertainty, or perhaps a financial crisis, the demand for gold rises sharply.
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Know Your Investment Strategy
You have to decide what sort of investor you are, so that you can figure out how to work gold into your portfolio. For example, if you are risk averse, and also you do not want to store gold in your own home, then you may want to get a gold account, gold certificate, or buy shares from the gold ETF. If you feel gold will appreciate in the long run, and you want to reap higher rewards, you can invest in mining stocks as well as the gold miners ETF, both of which are leveraged, meaning they multiply advances and declines in the gold price. For a buy and hold investor with average risk tolerance, 25-30% of the portfolio invested in gold is reasonable. A more speculative investor might want to hold a higher percentage in gold, and make use of more leveraged instruments like gold stocks and futures. There's no right or wrong amount of gold to carry. There is only the amount that is right for you.
Knowing Where to Buy Gold
Owning gold has never been easier than it is today. Once you know your strategy, then you can learn to pick out which investment vehicles obtain the most sense to you. There are many methods to own it, several of which can be done with clicks of a mouse. You can, of course, opt for gold bullion or cash ownership. If you want to own it but have someone else take possession of it, then gold accounts and/or gold certificates are for you. If you want to trade it like a stock, then the gold ETF has to be your choice. For those who want a bit more risk with the potential for higher rewards, you can find gold mining stocks, the gold miner's ETF and leveraged ETF funds.
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