Back in the day, the dollar was tied to the value of gold. Before that, gold was used as currency. Today, its use is a bit more complicated. It’s used in jewelry and as an investment option, but should you include it in your investment portfolio? This guide covers everything you need to know about investing in gold and building wealth.
Reasons to Buy Gold
The main reason to buy gold is that it’s typically protected against market downturns. Many investors, for example, have purchased gold to protect themselves from market downturns. Gold’s value increased by over 100% during the 2008 financial crisis, which was a major boon for those who owned it.
Gold also tends to rise steadily alongside the stock market. From 1971 to 2024, for example, the stock market delivered an average return of 11% to stockholders. During the same period, gold delivered an 8% return. While not as high as the stock market, this does prove it can be a steady way to increase your wealth without the same level of risk as the stock market itself.
Reasons to Avoid Buying Gold
Unlike shares or bonds, gold does not generate passive income. You would need to sell the gold in order to convert its value into money. Storing gold is also an active cost, as you’ll need to pay for storage and insurance. Selling gold at a profit will also trigger capital gains tax in certain countries.
Should Buying Gold be Part of Your Investment Strategy?
The best investment portfolio is a diverse one. As gold holds steady through economic downturns, it is an essential foundation for conservative to medium-risk investors. If in doubt, reach out to a wealth management firm to advise you. Not only can they help you make better, more informed investments, but they can also manage your portfolio based on your preferred investment strategy. This is the best way to make every dollar, including those you invest in gold, work harder overall.
How to Invest in Gold
There are a few different ways that you can buy and invest in gold, and the one you choose will impact your portfolio.
You can buy physical gold, often in the form of gold bars. The value of these bars will go up as the price of gold goes up. The issue, however, is that it may be difficult to quickly sell the gold at market value.
The other option is to invest in gold. To invest, you’ll need to invest in gold stocks or gold ETFs. Alternatively, you can also purchase shares in a gold mining or refining company, which would pay out dividends that increase as the value of gold increases.
How Much Should I Invest in Gold?
While gold is stable and has increased in value, its lower rate of return means it’s not an ideal option as a sole investment. That’s why experts recommend that gold should only make up between 3 to 6% of your stock portfolio. This, of course, changes if you invest in gold company stocks instead, as these can act as more of a regular stock investment.