Many financial advisors and seasoned investors advocate having a portion of your portfolio in gold. While stocks can rise quickly to bring high profits, gold acts more as insurance to protect your investments during a downturn in the market when those same stocks tumble.
If you plan on investing in gold, here are five facts to consider:
1. Buying gold isn’t necessarily an investment for getting great returns. The price fluctuates during good and bad economic times, but always maintains some value,
according to Bank Bazaar.
The main goal of having gold in your financial portfolio is for security during inflation and protection when the stock market declines.
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Gold prices usually rise in a troubled economy, so having a portion of your investments in the precious metal help keep your finances safe. Gold might increase in value when your other stocks fall in value.
2. Gold can be held through mutual funds or exchange-traded funds. The funds may be backed by physical gold or certificates that can be exchanged for gold.
Gold funds are usually purchased for the convenience rather than keeping real gold in a safe place. You avoid concerns about a bank or fund provider going under by making sure the fund is allocated for investors and not owned by the bank or fund provider,
according to The Globe and Mail.
3. Many investors prefer owning physical gold, such as gold bars or coins, so they are not getting just a promise of the gold value through paper or certificates. Buying physical gold also means the extra expense of keeping it in a bank vault or buying a safety deposit box.
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Keeping it yourself also means insuring the gold. Bank vaults usually have insurance.
4. If you don’t want to actually own gold while taking advantage of it, you can invest in gold futures through a contract. You are committed to buying the gold at the end of the contract, but you can sell the contract before it expires and continue investing in gold futures with another contract without purchasing gold.
5. When buying physical gold, the prices of bars and coins may differ among banks, brokerage firms, and gold dealers,
according to the Federal Trade Commission.
The price is usually higher than the actual value of the gold because of its fluctuating price. Compare prices with different dealers and consult with reputable dealers or financial advisors to find the best products.
The FTC advises investors to avoid sales representatives who minimize the risks involving gold investments. Although gold is a stable investment over the years, it can go through periods of dropping dramatically in value for years as well.
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