Gold is often considered a strong asset for diversifying your portfolio and as a safe-haven asset in times of uncertainty. The precious metal can be appealing through periods of economic uncertainty and recession, as well as when inflation runs high. But like any investment, you can benefit from gold most when you understand how it fits within your overall financial plan, and make a strategic allocation, not one based in fear. The SPDR Gold Shares (GLD), the world’s largest gold-backed exchange-traded fund, has about $75 billion in assets. If you choose to invest this way, Kiplinger prefers the lower-cost iShares Gold Trust (IAU), which has annual expenses of 0.25%, compared with 0.40% for GLD. The idea that gold preserves wealth is even more important in an economy where investors face a declining U.S. dollar and rising inflation.
Another option for buying gold is to purchase it in the form of jewelry from a jeweler. It’s recommended you do due diligence on any source from which you’re purchasing physical gold. As such, gold has typically had a low or negative correlation with other major asset classes, such as stocks and bonds.
The Gold Mining Sector
So another good rule of thumb is to buy gold when things have calmed, at least temporarily — the eye of the storm, so to speak. But many think the long-term outlook for gold remains good, so now might be the time to jump in. The wealthy are often in a better position to hold gold long-term. Imagine if you had bought gold in the early 2000s for less than $300 USD. As of January 2024, the spot price of gold was over $2000 per ounce. If a wealthy investor held gold for those years, they would experience a 566.67% increase.
Educate Yourself About Gold’s Role in Diversification
It’s not just that gold is traded on global markets 24 hours a day, ensuring investors can get cash when needed. It’s also that gold is at the basis of exchange-traded funds and company shares that are liquid as such investments get. Some funds own companies that mine different types of precious metals; some funds are global, and others own only small- and mid-capitalization mining companies.
Gold Coins
Think about how you have reacted to past market downturns or fluctuations in your investments. If you get anxious and sell during dips, a high allocation in gold might suit you, given its reputation as a stable asset. If you are comfortable riding out market waves for potentially higher returns, you might tolerate more exposure to other, more volatile investments.
- Investing in gold can be done through various forms, with gold coins and gold bars being two popular options.
- NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
- However, its price can still fluctuate due to global economic conditions, currency valuations, and demand for jewelry and industrial use.
How To Invest In Gold
Gold certificates represent ownership of a specific amount of gold stored by the issuer, usually a bank. They are essentially paper documents that certify the holder’s claim to a certain quantity of gold. This allows you to benefit from gold’s price moves without the need to manage the physical asset. If your focus is simply diversification, gold isn’t correlated to stocks, bonds, or real estate, meaning even if all else is declining, gold can often be a place of relative safety. Below, you can see the difference between investing $100 in gold vs. the S&P 500 index in 2000. From a fundamental perspective, gold is generally viewed as a favorable hedge against inflation.
As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities. The 2012 “Australian Kangaroo One Tonne Gold Coin” contains one metric tonne of 99.99% pure gold, and is approximately 80 centimeters in diameter by 12 centimeters thick. Benchmark Treasury notes came in last during this period, with a 2.6% annualized return, or 0.04% in inflation-adjusted terms. The 10-year Treasury note delivered an annualized return of 3.8% over the same span.
The first two are the inflation rates and employment rates in the U.S. The last two charts are the historical spot prices and monthly percentage shifts in gold over the previous decade. If you want to buy physical gold somewhere other than a broker, jump to learn more. In uncertain times, these ideas can help you organize your financial life, prepare for the unexpected and stay focused on what truly matters to you and your family long term.
Some investors may feel they should reduce their allocation to equities if the odds of a U.S. recession rise, but as previously mentioned, investing in gold may be an approach to consider. Historically, gold prices tend to rise when bond yields, adjusted for inflation, fall. Conversely, a stronger dollar and rising yields, driven by improved global growth, would likely limit gold’s upside. It has benefits for investors is buying gold a good investment looking to diversify and protect their assets during periods of downturn, but it can also limit your earnings over time and perform differently than you might expect. If you’re thinking about investing in gold today, make sure you know how it best fits into your overall investment strategy and financial plan.
