According to a 2023 survey from RetirementLiving.com, 63% of Americans are skeptical about making new, traditional investments with the current state of the economy. Gen Z is the least skeptical of alternative investments, while 43% of millennials have already made alternative investments in the past six months.
Investing in gold has long been a popular strategy for individuals looking to diversify their investment portfolio. Since the Silicon Valley Bank collapse in March of 2023, one out of four respondents in the study report an increased interest in alternative investment options. Gold and other precious metals are perceived as tangible assets. However, the lack of income generated from gold is a detractor for at least one-third of the survey respondents.
Understanding Gold as an Investment
Gold has played a significant role in the monetary system throughout history. It once served as the standard for currencies, with central banks holding gold reserves to back the value of their fiat money. The World Gold Council provides data on the amount of gold held by central banks and private investment entities, giving insight into the global demand for this precious metal.
When it comes to diversifying your portfolio, gold may be just one way to ensure the longevity of your investment. Actor, producer, and director Dean Cain says that, as a young actor, he was initially given advice to invest in real estate. “Jerry Weintraub gave me great advice. He told me, ‘Buy your house and pay for it. You’ve got your base, and you can take care of yourself, and you won’t need all these other things.’ I think it was great sage advice,” Cain shared on the Wealth of Geeks Podcast.
“The stock market is so volatile,” Cain continues. “The market can be solid for some people, but it can also be hit or miss. That’s why I started working with Genesis Gold Group. People come to me all the time and say, ‘Oh you made a bunch of money when you were doing Lois & Clark.’ I actually didn’t. I made a lot more money on Ripley’s [Believe It or Not!], and I made even more than that with my investments in gold and real estate.”
Role of Gold in the Economy
The value of gold is influenced by investor sentiment and global economic conditions. During times of financial uncertainty, gold often serves as a safe haven asset as investors flock to its perceived stability. This can lead to price fluctuations in the gold market, making it an attractive investment option for those looking to diversify their portfolio.
“I like the power of precious metals,” Cain said. “It’s solid. It keeps going up. It’s always going to be worth something.”
Gold as a Wealth Preserver
One of the key reasons why individuals invest in gold is its ability to preserve wealth. Physical gold, such as gold jewelry, coins, bars, and bullion, offers a tangible asset that holds value over time. These physical gold investments can be acquired through reputable dealers, online brokers, private mints, and even through gold individual retirement account (IRA) accounts, which allow individuals to invest in physical gold, gold stocks, and gold futures within the IRA structure.
John Dealbreuin, a personal finance expert who writes at Financial Freedom Countdown, has invested in physical gold and ETFs. He says, “Investing in physical gold can be a strategic move since gold is a tangible asset, offering a hedge against economic uncertainties and inflation.”
Different Ways To Invest in Gold
There are several different ways to invest in gold, each offering unique opportunities and considerations. Physical gold, including gold bars and gold coins, provides investors with direct ownership of the precious metal. On the other hand, gold mining stocks offer exposure to the gold market, as the performance of mining companies can influence the price of gold mining stocks. Additionally, gold exchange-traded funds (ETFs), mutual funds, and futures contracts provide investment opportunities in the gold market, allowing investors to participate in the price fluctuations of gold without directly owning physical gold.
Evaluating the Risks of Gold Investment
As with any investment, there are risks associated with investing in gold. It is important to understand these risks before making investment decisions. The price of gold can be influenced by market conditions, investor sentiment, and central bank policies, leading to price fluctuations in the gold market. These fluctuations can create investment opportunities for those who can time the market correctly.
Prakash Kolli of the Dividend Power investing site explains, “Gold has historically been thought of as a store of value. People see it as a safe place to put their money, especially during times of geopolitical and economic uncertainty. It can also help protect against loss of buying power when inflation or deflation are concerns.
“However, gold does not pay dividends or interest, meaning it does not generate income. But the main problem is gold has underperformed other asset classes for long periods. Between 1989 and 1999, the stock market performed well, but gold was in a bear market, losing about 27%. Today, the easiest way to own gold is through an exchange-traded fund (ETF), a person does not need to buy it outright. But if someone desires to buy physical gold, coins or jewelry are an option.”
Potential Ethical Concerns
When considering gold investments, it is important to acknowledge the potential ethical concerns related to gold mining, labor practices, and environmental impacts. Socially conscious investors may have reservations about investing in gold mining companies as the mining industry has faced scrutiny regarding the ethical implications of gold mining. Factors such as environmental and social responsibility, labor conditions, and the sustainability of mining stocks can impact the investment decisions of these socially conscious investors.
Gold as a Diversifying Investment Strategy
Gold is often seen as a diversifying investment strategy, as it can help reduce the overall investment risk of a portfolio. By adding gold investments to a portfolio, investors can mitigate the impact of market fluctuations, as gold tends to have an inverse relationship with the stock market. Additionally, gold provides a long-term store of value, protecting against inflation and fluctuations in the value of fiat currencies.
Josh Dudick, owner of Top Dollar Investor, shares, “Investing in commodities such as gold or cryptocurrencies will enable an investor to gain diversification in their portfolio. Commodities generally perform well during period or increased geo-political risk and high inflation. In the current market environment investing some of your money into a physical or digital asset is a sensible idea.”
Factors To Consider Before Investing in Gold
Before investing in gold, there are several factors to consider. It is important to evaluate the expense ratios associated with gold investment funds, as high expense ratios can eat into the potential gains of the investment. Consulting with financial advisors can help investors understand the risks associated with gold investments and make informed investment decisions. Additionally, it is crucial to consider the capital gains tax implications of gold investments, as gains from the sale of gold investments may be subject to taxation.
Investing in gold can be a valuable strategy for diversifying your investment portfolio. Gold has historically acted as a wealth preserver and a safe haven during times of economic uncertainty. However, it’s important to carefully evaluate the risks associated with gold investment, such as the fluctuating nature of the gold market and potential ethical concerns. Before making any investment decisions, consider factors such as your financial goals, risk tolerance, and the current market conditions.
This article was produced and syndicated by Wealth of Geeks.