How to Use Gold Assets to Diversify Your Financial Portfolio

Gold Finance

Gold is the most popular precious metal that is used by almost every investor to secure one’s assets in times of a market downturn. If you are interested in knowing more about it, keep reading this article. We will be covering a straightforward and easy methods of investing in gold and why it is a good idea. There is a whole variety of ways to make an investment in gold. For instance, if you do not want to purchase physical gold bard, you may open a gold IRA, mutual funds, exchange-traded funds, or shares of gold mining firms.

Let us have a look into indexed exchange-traded funds (ETFs) that are fully backed by physical gold and closely follow underlying price. ETFs allow investors to acquire gold in order to diversify their stock portfolio, despite the fact that the product is not owned directly by them, but rather in safe bank deposits. Investors buying an ETF receive an assurance that their shares are fully backed by real gold. Gold is a pretty good uncorrelated investment, as there is no correlation between the price of gold and the price of equities, which in the end decreases the volatility of the whole portfolio.

If you look at the gold price, you will see that after a period of unprecedented growth, the price of gold remained rather in one place for already twenty years. This proves that gold is a good investment to save the value of your money, but also after two decades of no growth and with current increased inflation, this makes it even more exciting investment. When considered from a long-term historical perspective starting two centuries ago, the performance of gold is just modestly better than that of inflation and, for most investors, that is what they need.

Warren Buffett is one of several skilled investors who doesn’t really like investing in gold and even considers it no longer to be a good safeguard against inflation. But, there are many other renowned investors who are investing big chunks of their money into gold and related investments. For that reason, we propose that you do not include more than five to ten percent of your portfolio in gold ETFs as a diversification tool.

Exactly why would investors buy gold amid a financial crisis? This is a good question as almost everyone is predicting sooner financial breakdown of severity comparable to the great depression. There was a time when a dollar was bound to some sum of gold. During the time of the gold standard, gold was seen as the most reliable store of value. Since then, this standard was abandoned, but gold remained the best defensive asset and it closely follows fiat currency depreciation due to inflation.

What happens to metal prices when there is a financial crisis? A horrible economic situation can be described as rising interest rates, rising inflation, and defaults of many companies. This all is a bad unprofitable time for everyone but precious metals as people try to store their falling money in a safe asset.

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