from recentInflation and , for layoffs at well-known companies (especially in tech), there have been many signs of economic instability lately. Amidst that uncertainty and volatility, some investors may consider .
Although not all investments pan out as expected, many people are turning to gold. As other assets such as stocks struggle, for example, other investments such as gold may rise or at least hold up well. Thus, by having a diversified portfolio, an investor may be able to weather economic headwinds more effectively.
Here, we take a closer look at gold’s potential role in portfolio diversification. If you think you could benefit from investing in gold, get started by requesting a free information kit to learn more about this unique opportunity.
How does gold diversify your portfolio?
Gold can diversify your portfolioas Gold can respond differently to economic conditions than other assets such as stocks and bonds.
For example, gold is often considered a World Gold Council, based on Bloomberg data. In comparison, the S&P 500 index, which is often used as a proxy for the U.S. stock market, is down nearly 20% in 2022, according to S&P Dow Jones Indices., though that doesn’t always end up being the case. Still, in 2022, amid higher inflation, gold prices rose 0.4%,
So, although you may experience negative returns overall in 2022, your portfolio may hold up better if you have some gold to diversify stock returns.
And inflation may not be the only underlying factor. Consumer economic depression is also correlated with gold prices, according to Federal Reserve Bank of Chicago Analysis of a University of Michigan study.
If consumers begin to sour on the economy, it could hurt companies that rely on consumer spending, for example, which could drive down their stock prices. Yet if you hold onto some gold, a rise in the price of the precious metal can at least partially offset stock losses.
Gold can also provide diversification against other assets such as bonds. Both gold prices and bond prices tend to fall amid rising interest rates, with gold doing better in 2022. As mentioned, gold rose 0.4%, Morningstar US Core Bond Index decreased by 12.9%.
You can learn more about gold’s ability to diversify your portfolio – and the potential support it can provide in times of economic uncertainty – by requesting a free information kit from Goldco now.
How is gold’s ability to diversify a portfolio beneficial?
By diversifying a portfolio, investors can reduce potential risk and sometimes increase long-term returns.
Gold may not always beat stocks and bonds as it will in 2022, but it exemplifies how assets can provide diversification and possibly mitigate losses. Sometimes the opposite happens, where other asset classes beat the returns of gold, which is why you may not want to overinvest in gold. Or, you may find that you like gold as well as other diversified assets. Either way, it’s good to know your options.
And while you can get higher returns in some situations, if, say, you invest only in stocks rather than a mix of asset classes, it’s hard to predict when that will happen. Therefore, investors often prefer to diversify and seek more stability.
If you can reduce the risk of large losses, for example, you can avoid the temptation to sell assets because they are going down. This way, you can invest for the long term and give your portfolio time to grow over the long term.
How to invest in gold to diversify your portfolio
perFor variety, you can choose from several options, such as:
- Invest in a Gold ETF: A gold ETF can give you access to gold without having to physically acquire it. Instead, you can invest in an ETF just like any other stock.
- Buy gold bullion: Some investors prefer owning physical gold, so you can buy gold bars or gold coins from online dealers.
- Invest in precious metals companies: Another way to get exposure to gold, although not quite as direct, is to buy stocks of precious metals companies that are involved in gold. For example, if the price of gold continues to rise, the stock price of precious metal companies may also rise.
Learn more about your gold diversification options by requesting a free information kit now.
How much gold should you keep in your portfolio?
Determining how much gold one should hold in one’s portfolio depends on factors such as your age, risk tolerance, portfolio composition, etc.
For example, someone in their 20s might prefer to invest more in stocks in their retirement portfolio, because they have a long time to try to let their wealth grow, even if there are bumps along the way. Yet someone nearing retirement age may seek investments that are considered safe stores of value, such as gold, even though gold prices may fall.
In general, if you invest in gold, you probably want it to be a part of your portfolio rather than the whole pie. Otherwise, you’re not diversifying. A rule of thumb to consider is to invest 5-10% of your portfolio in gold.
overall,Can potentially help you build a more diversified, stable portfolio. As economic conditions change, you can’t be caught in the wind if you have some asset like gold that can hold even when the broader economy crashes. So, when you’re reviewing your portfolio, consider whether adding gold makes sense.
Have more questions? Learn more about this unique investment opportunity by requesting a free information kit now.