When the term investing gets thrown around, most people automatically think about stocks, mutual funds, or real estate. Those are sort of the standard investments that most people have some level of familiarity with.
But when investing, it pays to diversify. And if there’s one staple investment of a well-diversified portfolio, it would have to be precious metals like gold.
Why Invest in Gold?
People have owned and invested in gold for centuries. And while it’s no longer commonly used as legal tender on a day-to-day basis, it still offers some of the same distinct advantages that have made it an attractive financial asset for so many years.
Here are some of the reasons why people invest in gold:
Gold is money
While gold might not be used as a currency today, it’s still money. Gold has been a store of value for more than 3,000 years – which is longer than most countries that are in existence today (let alone their currencies). If you rewind to 1900, no currency has been a better long-term store of value than gold.
Gold is constrained
Unlike the U.S. dollar, stocks, and most other types of investments, gold is a finite asset. And while there is still plenty of unmined gold in the world, there will eventually come a time when no more can be found. In fact, most of the world’s gold supply was found prior to 1990. This makes it a very constrained resource.
Gold is tangible
Gold is one of the few investments that you can actually touch, feel, and hold. This puts it in the same asset category as something like real estate. Other investments, like stocks or even cryptocurrency, only exist on paper.
Gold is liquid
Unlike real estate, which can take months to sell and transfer ownership, gold is highly liquid. In fact, it may be the most liquid tangible asset around. This is encouraging for people who have most of their investments tied up in assets that lack liquidity.
Gold is often uncorrelated
Interestingly enough, gold is often uncorrelated from the larger economic marketplace. When stocks decline, gold often rises. When inflation goes up, the value of gold tends to soar. This makes it an ideal investment within a diversified portfolio.
In other words, gold is an incredibly attractive and resilient investment. If you don’t already have some in your investment portfolio, it would be wise to consider purchasing some moving forward.
4 Different Ways to Invest in Gold
Did you know that there are multiple ways to gain precious metal exposure in your investment portfolio? Here are some of the most common ways people invest in gold:
1. Gold Bullion
Gold bullion is really just a sweeping term used to describe physical gold that’s pure (or nearly pure) and has been certified for weight and purity. It comes in a variety of forms, including bars and coins. The most common size is a one ounce coin, which allows for maximum liquidity.
2. Gold ETFs and Mutual Funds
Don’t want to own physical gold? You can always invest in gold exchange-traded funds (ETFs). When you buy shares in these funds, you’re basically buying the equivalent of one-tenth of an ounce. These companies own physical gold bullion as part of their portfolios.
The benefit of investing in a gold ETF or mutual fund is that you don’t have to worry about owning or storing the gold. Another added benefit is that you can more easily buy and sell in a matter of seconds.
3. Gold Mining companies
Another option is to buy stock in gold mining companies. This obviously doesn’t directly correlate with the price of gold, but it is a good way to get some exposure to the upside of the industry.
4. Gold IRA
Did you know that you can hold gold within an IRA? And here’s the best part: You can use a gold IRA to invest in any of the different types of gold mentioned above. Plus, because IRAs offer tax advantages, your investments instantly become even more valuable to your financial portfolio.
The key to investing in gold within an IRA is to choose the right gold IRA. There are plenty of different options, but we recommend choosing a company that’s been around for a while and has good reviews and lots of credibilities.
Ways to Store and Protect Physical Gold Investments
When it comes to investing in physical gold, it’s important that you take care of it. This means storing it in a way that ensures it’s safe and free from damage.
If you’re investing in gold through a gold IRA or similar type of account, you won’t actually have to worry about dealing with the physical gold. (You legally aren’t allowed to maintain possession of it. Instead, you have to hire a custodian to oversee your gold IRA.) But if you’re investing in gold on your own, you’ll need to have a plan.
Option one is to store your gold at home. This is typically done using a safe with a combination lock. If you’re going to go this route, make sure you invest in a quality safe. Furthermore, you need to hide it well so that thieves can’t easily find it. (You also have to keep your mouth shut. Only one emergency/designated person should know where your gold is hidden and how to access it.)
Option two is to store your gold in a safety deposit box at a local bank or financial institution. The benefit here is that banks typically have greater security and nobody is going to come and rob you at your bank. However, the downside is that it isn’t in your physical possession. Theoretically, something could happen outside of your control. To some, this is a little alarming.
Putting it All Together
Investing in gold is something that every savvy investor should at least consider. You’ll have to meet with a financial advisor to figure out the best asset allocation and the specific ways to gain gold exposure, but it should certainly be a consideration. At the very least, you’ll have a more balanced portfolio that’s capable of thriving in any market conditions.