A gold investment mistake to avoid – and what to do instead

after A wave of price hikesCombined with the increased uncertainty around one Possible recession And with future federal interest rate hikes, gold is becoming one More attractive investment options For many Americans today.

If you are looking for a sense of security amid a changing economic environment, gold can be a good option. Namely, gold a Ways to diversify And protect your investments against downturns in other markets.

But it’s important to find the right balance between how much you allocate to gold and your overall investment portfolio. Don’t make the mistake of putting too much on the side safe haven And miss out on potential long-term growth elsewhere. Read on to know how investing in the right amount of gold can help you reap the best benefits Its advantages.

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Avoid these gold investment mistakes

In a well-rounded portfolio, gold is the best way to go diversity.

According to Gregory Crofton, CFP, founder of Adap Tax Financial, gold, like some other asset types, is “an example of an asset that is ‘uncorrelated’ with other financial assets. “This means that it increases in value when other assets decrease and vice versa.”

This is the main reason why you can benefit from these assets when the markets are volatile. Take 2022 for example. The S&P 500 actually ended the year More than 19% lossAt the end of the year the price of gold was in the same place as when they started.

“Uncorrelated investments are a fundamental benefit of diversification for smoothing returns (or reducing the value of your investments during tough times),” says Crofton. “But there are other investments that contribute to better long-term returns that are smoother, such as a mix of equities, bonds and other products.”

Since gold isn’t necessarily known for long-term growth compared to these other investment options, investing a large portion of your portfolio in gold can be a mistake, should you decide it’s right for you. Over the long term, the S&P’s growth outperforms gold and others alternative resourcesFor example.

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How much should you invest in gold?

Even if gold doesn’t make up the majority of your portfolio, it can still be a great asset Long term investors.

Experts usually recommend Keep your gold investment around 5% or maximum 10%.

“Gold adds another layer of diversification and can act as a hedge in times of turbulence,” said Trent Porter, CFP, founder of Priority Financial Partners. recently told CBS News. “But since there have been long stretches where gold stocks have underperformed, an allocation of less than 10% usually makes the most sense.”

With a small gold investment, you still reap the benefits. when Inflation is high, for example, and the price of gold rises — you’ll also see the value of your investment increase. and during Economic recessionGold can help you weather damage by acting as a stabilizing force.

But for long-term investors, traditional stocks and bonds may be necessary to experience growth over time. With the right allocation, you can get the best of both worlds. Think a gold investment might be right for you? See how gold can help you work towards your goals with a free investment guide.

Bottom line

One of the most important things to consider if you are looking Invest in gold How much to invest. A good benchmark is around 5% to 10%. This will allow you to reap the benefits of gold as one Safe haven and store of valueStill grow your portfolio with traditional investment assets over time.

If you are thinking of investing in gold, talk to an expert who can help guide you towards the right plan today.