How to balance gold with the rest of your portfolio

If you are an investor putting money aside for the long term, you may already be familiar with its importance diversity.

A diversified portfolio can help you make the most of your investment timeline. You may have some investment allocations for growth assets, which can help you build wealth — often in the form of stocks and funds that hold them. But you can invest a part of your money in assets that are more suitable for it Security and stability. They can help weather other market downturns, so you’re not affected by volatility.

Although there are multiple investments you can use to diversify with a focus on stability, the gold A common resource type. Gold is often seen as a Hedge against inflation. If you’re interested in diversifying with gold, there are a few things to know about balancing the precious metal with your overall portfolio.

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How to balance gold with the rest of your portfolio

These tips can help ensure you’re making the best choices for your investment goals Adding gold to your portfolio:

Choose the best gold investment type for you

There are several How you can invest in goldAnd choosing the right approach for your goals can help ensure your gold investments align with the rest of your portfolio.

For example, retirement-focused investors can choose a Gold IRA – A retirement account that you can use to hold physical gold. Or, investors who prefer buying through brokerages can opt for gold funds Gold ETFswhich indirectly follows Gold price changes By buying into companies that depend on the performance of gold, such as gold mining companies.

The type of gold you invest in can affect the fees and maintenance required for your gold investment, which should be considered when thinking about the total cost of your gold investment along with the rest of your portfolio. Physical gold, for example, may require additional costs for safekeeping, whether you choose to hold it yourself or work with a custodian.

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Choose the right allocation

Experts usually recommend Keep your gold investment around 5% to 10% of your total investment. A smaller allocation can help you reap the benefits of gold while leaving plenty of room to capitalize on the growth that more traditional assets can offer.

“Understand that gold is generally better when the market is not, but those moments are shorter than bull markets,” says Max Pashman, CFP, founder of Pashman Financial. “Over the long term, markets have been resilient and have historically been an excellent choice for long-term investors.”

If you put too much money into gold (or other safe haven types), you may miss out on the potential growth that stocks and bonds can offer over time. But not diversifying at all can expose you to more risk in more volatile markets.

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

Invest for the long term

Long term investors One can greatly benefit from investing in gold, since they can use it as a hedge Different economic cycles.

where Short term fluctuations As a component of any asset, including gold, implementing it into your long-term investment strategy is a more effective way to benefit from gold as a store of value.

Actually, a 2019 report The SPDR Gold Strategy Team from State Street Global Advisors looked at the price of gold in a hypothetical portfolio that included global stocks, real estate, private equity and more. It has been observed that between 2005 and 2019, gold investments of 2% and 10% value can improve the cumulative return of the speculative portfolio and reduce its maximum losses compared to portfolios without gold-backed investments.

Bottom line

Investing in gold can be a strategic way Your portfolio is diversified Against market conditions and maintaining precious metal value reserves over the long term. If you’re thinking of putting a portion of your portfolio toward gold, make sure you consider how much you should allocate, choose The right type of investment Be prepared for your goals and long-term investments. Using gold as part of your larger financial plan with a well-diversified portfolio can help you grow your money over time.

Learn more about your gold investment options with a free investment guide