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Gold has been a popular and stable financial instrument for centuries, and some speculate that it is among the oldest form of currency that exists.
Be it to protect your portfolio against economic turbulence or ensure that you have appropriate diversification in your retirement funds, gold has a place in many different economic scenarios.
However, that doesn't mean that gold is always the right investment for you, as an investment that doesn't perform as well as possible may represent a lost opportunity.
As such, you have to ask yourself this important question: Is it good for you to invest in gold today?
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What are the benefits of investing in gold?
An investment in gold tends to have a variety of benefits that can help almost all investors, regardless of what your investment objectives may be.
First and foremost: Gold is a safety valve and an investment that people tend to flee to during difficult economic times. Gold has historically been an asset that people move to, as it tends to have lower volatility rates.
This means that gold is less likely to crash and certainly less likely to crash during times of economic stress when its value tends to rise.
Gold also serves to maintain its value during times of high inflation - like right now. Inflationary times reduce the value of money, and this often causes stocks to fall.
The same values that make gold attractive during difficult economic times help it maintain its value when inflation is high. As a result, gold is commonly referred to as a hedge against inflation, and people tend to buy gold when inflation is high.
There is also extensive value in diversifying in gold. Financial experts typically advise individuals to diversify their overall investment portfolio. This diversity can mean many different things, as individuals should invest in numerous asset classes.
This includes stocks, bonds, real estate, and precious metals. This way, even if an entire asset class crashes due to extraneous circumstances, you will have a portion of your portfolio that maintains (or even grows) in value.
The physical nature of gold ensures that you can easily maintain the asset. Unlike other physical assets, like art collectibles, cars, baseball cards, or other collections, gold will never deteriorate with age.
In fact, in many cases, older types of gold are worth more than newer types. This means that you can not only easily maintain gold, but you can pass it from one generation to the next without fear of the asset losing value.
Last, gold is highly liquid. Gold has been an extremely in-demand metal for many, many years, and there is no way that this will change soon. A robust precious metal market is active 24/7 that allows individuals to buy and sell gold, and even the most cursory of Google searches reveals that there is a robust market for the metal. As a result,
What are the potential drawbacks of investing in gold?
To be clear, there are many advantages to investing in gold. However, just like every investment, there are potential risks and drawbacks to a gold investment that you have to consider.
First, as noted above, gold tends to do well in difficult economic moments. However, when the economy is performing well, the performance of gold may not keep up with the market in general.
Yes, gold is highly likely to maintain its value and gain value over time, but that doesn't mean that there isn't a potential opportunity cost for gold investment.
Second, gold doesn't yield interest or have the potential gain opportunities of other stock instruments.
For example, an investment in gold yields no dividends: You can't invest in gold and gain interest in the investment.
Gold will never have the benefits of a company sale or stock split, meaning that an investment in gold will cost you access to some opportunities.
Next, an investment in gold can be complicated, and it forces you to consider other circumstances besides the underlying value of the asset and how it performs over time. As you will see shortly, there are many types of gold that you can invest in.
These investments can be extremely challenging and force you into a circumstance where you invest in gold, but the wrong type of gold, ultimately costing you assets.
This is particularly the case for gold IRAs, which are subjected to certain complex regulations (you can't physically possess the gold, you have to keep the gold in an approved storage facility, etc.) that can make this investment difficult.
Finally, in many cases, an investment in gold is a physical asset that you are responsible for storing. This means that you have added worries, including theft, insurance, storage, and loss. If you lose your investment, and it's uninsured, the value of your investment is completely gone. This isn't the case for virtually any other investment.
How can I invest in gold?
On the one hand, an investment in gold may seem relatively simple, right? After all, all you have to do is find a gold vendor and make a purchase.
Of course, nothing in the financial world is truly that simple, and if you want to invest in gold, you have to consider the various options.
First, there is gold bullion. When you watch movies and see images of gold in a safe, this is what you are looking at: Stacks of gold bars that are in a variety of different sizes. This bullion and bars come in an array of different sizes and purities, and it is often very, very expensive.
Next, there are gold coins. Like bullion, they come in different sizes, types, and purities. Coins have the advantage of coming in multiple designs, including American and foreign coins. This gives your investment an aesthetic value it is not otherwise offered.
Finally, there is gold jewelry. Gold jewelry, of course, is limited only by the imagination of the wearer and the designer, and this is one of the few investments that have a value that goes beyond just it is financial one, as you can literally wear your investment.
However, the process of smelting gold may increase or decrease its value. Furthermore, an investment in gold jewelry can add a degree of complexity to your investment, as you can now invest in gold but still have to consider the overall aesthetic of the jewelry.
Furthermore, a gold investment may not even require you to actually purchase any precious metals. An investment in gold can take many forms, and this includes buying stock or bonds from gold companies.
You may also be able to buy gold ETFs, or exchange-traded funds, that are involved in gold in some way. Keep in mind that there are also secondary markets for gold, including gold options.
These are complex investment vehicles that require an understanding of how derivatives work, but if you are so inclined, these investment options do exist for gold.
Last, it is important to remember that a gold investment can help secure your retirement. You can create a gold IRA or individual retirement account. IRAs are extremely useful retirement vehicles.
Depending on the type of IRA you select, you may be able to make deposits tax-free or make withdrawals without paying any taxes. Regardless of the IRA type, your investments can grow without taxes.
However, gold IRAs are different than regular IRAs, and they are subjected to more regulations. You have to deposit the gold in an IRS-secured location, and you cannot keep the gold in your own person.
You also have to buy the gold from a vendor, and you cannot use gold that you have already purchased for IRA purposes. These regulations can make buying gold for a gold IRA much harder.
However, all of the regular benefits that apply to gold - including protection against inflation and providing diversification - absolutely apply to gold IRAs. As such, there are many real benefits to a gold IRA.
What are your investment objectives?
As noted above, a gold investment comes with a variety of benefits. However, determining your specific objectives is ultimately critical to ensuring that you make the right investments and that you select the right gold medium to invest in.
If your investments are to achieve rapid-fire growth and ensure that your portfolio grows as quickly as humanly possible, and if you have an extremely high-risk tolerance to achieve that investment growth, then an investment in gold is almost certainly not for you.
As noted above, gold's growth tends to be slow and steady. An investment in gold is not likely to see massive gains. Instead, it will grow slowly over time, gaining in value, with that value accelerating in times of economic strife or turmoil.
If your investment objectives are to invest in something that maintains value over time - and to diversify your investments - then gold is likely a solid investment for you.
If you are trying to plan for retirement, then an investment in gold is unquestionably a solid choice, as this investment will allow you to diversify your portfolio and ensure that you have some protection against the ups and downs of the market.
How has gold performed historically?
This may be the most important question to ask if you are considering an investment in gold, and it is also the most difficult one to answer, as the answer to this question depends on the time you are looking at.
For example, as of this writing, gold's value has actually decreased over the past month, moving from roughly $2019.10 a month to $1978 a month. However, that ignores the fact that gold was, briefly, near its all-time high of $2019 a month, a high only seen during the height of the COVID-19 pandemic. Over the past year, gold moved more, moving from $1848 to $1978 an ounce.
In other words, the historical performance depends on the time period you are looking at, the underlying economic conditions, and whether or not you are tracking gold against the value of other underlying investment instruments, like the stock market.
So, is gold a good investment?
There is no set way to answer this question, as the ultimate answer depends on current economic conditions, your investment goals, and what you ultimately hope to obtain with your money.
However, there is no question that gold has performed well historically, and it has certainly performed well in recent times. In times of trouble, investors flee to gold, and this reality tends to increase its price.
While gold may not always be the right investment at a given moment or the right investment for each particular individual's specific portfolio, there is no question that gold represents an excellent and safe investment that may fit a variety of financial portfolios.
Remember to read our list of the Top Gold Companies.
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