Lately gold prices have gone up considerably, so this is making a lot of people ask the obvious question: should I invest in gold and other precious metals? This may not be a bad idea at all, considering that buying gold as an investment will offer diversification to your portfolio and it could also make up for potential inflation.
If you are considering buying gold as an investment, you should keep in mind that it is quite a peculiar investment. On the one hand, if you own it, there are few economic benefits – only the hope that could sell it for more than you bought it at some point in the future. But on the other hand, the main argument in gold’s favor is that it is always something to fall back on, even if everything else in your portfolio is going down the drain. For example, when the panic began in the fall of 2008, gold was only going up, so it can act as a safety net for your investment portfolio.
However, you shouldn’t necessarily get too comfortable with the safety of your gold investment. The only reason it is considered a safe haven by investors is because everyone believes it. If suddenly investors began to doubt this fact and noticed that gold is actually of marginal economic value and relatively volatile, then your investment could hit the fan. So, gold is not infallible, and you should still monitor it closely.
ETFs (Gold Exchange-Traded Funds) or precious metal stocks offer a liquidity solution when buying gold as an investment, because you can sell and buy these on a regular stock exchange. Many of the ETFs represent a variety of precious metals, so it is easy to invest in a diversified group of stocks and not spend too much. Another popular gold investment option is to choose gold coins. These have two main investment advantages: the coin’s collectability and the value of the actual gold. In some cases one is more valuable than the other. Sometimes the coin is worth strictly its melt weight, while in other cases the coin will be worth much more than the melt value, simply because it is collectible and rare.
So, if you are still asking the question ‘should I invest in gold’, the simple answer is probably ‘yes you should,’ and in no way would it be a crazy thing to do! On the contrary, it makes good sense to have gold as well as a small amount of silver and other precious metals in your portfolio as well. However, you probably shouldn’t invest a whole lot of your portfolio in it. It is wise to determine what percentage of risk you are comfortable with and delegate some of your portfolio to precious metals. It would also be wise to list them in your asset allocation plan and when necessary, rebalance your portfolio.
For more information on gold as an investment, go to:
en.wikipedia.org
