4 Ways of Adding Gold to Your Investment Portfolio - Money Soldiers
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4 Ways of Adding Gold to Your Investment Portfolio

For an investor, gold is a glittering temptation.  After all, it is a relatively safe commodity when it comes to investment returns.  But if you think investing in gold is foolproof, it is far from that.  Many investment planners consider gold as a hedge to protect your wealth against the risk of loss.  And they are quite right as investing in gold, traditionally speaking, has been used by generations as a hedge against inflation.

Worries over inflation still hold and as a result gold is considered as a good investment by many even today.  If you are contemplating investing in gold, there is more than one reason to do so.  To begin with – it is a protection and insurance against:

• Inflation
• Global uncertainty
• Currency debasement

Besides, there are several advantages of investing in gold.

 

Why Invest in Gold?

This precious metal plays a major role in your long-term investment and financial strategies.  Though there are different opinions about using gold to protect against inflation or about its effectiveness, there is no denying that gold protects and also improves your purchasing power.  In addition, it helps manage risk.

When determining its role in a portfolio i.e. in inflation protection or currency hedging, it is essential to use and analyse gold as a strategic component and not in isolation.  As far as investors’ portfolios are concerned gold helps in numerous ways, including:

• Protecting their global purchasing power
• Reducing portfolio volatility
• Serving as a premium liquid asset
• Minimising losses during systemic market risk

One significant factor about gold is that, you can get immediate cash for gold even in situation when selling of other assets can cause huge market-to-market losses.

4 Ways of Adding Gold to Your Investment Portfolio 4 Ways of Adding Gold to Your Investment Portfolio

88x31 4 Ways of Adding Gold to Your Investment Portfolio
Gold bar inspires Jan Skoyles by The Real Asset Co., on Flickr.  This work is licensed under a Creative Commons Attribution 2.0 Generic License.

 

Gold Investment

It’s never too late to invest in this precious metal, regardless of its price.  However, there is a thumb of rule to follow: the dollar cost averaging.  Put a particular amount of money for investing in gold, no matter what the price.  This strategy will lessen the downside of gold investment and also spreads risk out over a long period of time, especially for an average investor.

You can invest anywhere between 3 and 10 percent in gold to be on the safer side.  Here are 4 ways you can invest.

 

1.  Gold Bullion

You can buy physical gold such as coins, jewellery and bars and store them in safety deposit boxes in bank or in your home.  Besides, you can sell gold jewellery and coins for cash to your local gold buyers.

If buying bullion or gold coins, try to avoid big premiums.  It must be close to the spot price; maximum 10 percent premium is still fine.  The higher the premium you pay, the less profit you are likely to make.  Gold coins that come from the national mint are made and sold typically at a 4 percent mark up and the retailer’s margin is likely to be 1 to 3 percent.

Here’s how you should calculate the gold premium:

• Subtract spot price from the quoted gold price
• Divide the number by the spot price
• Multiply it by 100

It is important to establish why you are buying gold bullion to avoid getting ripped off.  For example, if you are buying it as a long term investment, try to negotiate a price that is closest to the spot price otherwise you will have to sell it for a much higher price in order to make profit.

 

2.  Gold ETNs

ETNs or exchange-traded notes are more risky, although they are flexible and you have the option to trade them long or short.  However, they have no principal protection.  These debt instruments track an index where you give money to the bank for an allotted period of time.  Upon maturity the bank will pay you a return, which is based on the performance of the gold futures market.

This means, there are chances of losing all your money.

 

3.  Gold ETFs

Gold exchange-traded funds are a great way to invest in this precious metal without storing it physically.  When you buy ETFs, you own gold equivalent to 1/10 an ounce.  In case the investor demands outdo the available shares, golf ETF issuers need to buy more physical gold and convert it into stock.

On the contrary, when investors sell and if there are no immediate buyers, the issuers redeem the gold and sell the gold equivalent.

 

4.  Gold Miner Stocks

This again is associated with higher risks as they trade with the larger equity market.  When buying gold-mining stocks, make sure the companies you are opting for have strong production and reserve growth.  Also, they must have proper management and good inventory.  Buy stocks from companies maintaining consistent production or at least have smaller-cap companies under their wings.

Most importantly, do not buy stocks from small gold miners, especially those in exploration phase and have no cash flow.  Their chances of actually striking gold and becoming profitable are less.  Besides, very few companies become takeover targets.

 

Conclusion

Investing in gold is indeed a good option to hedge financial uncertainties.  However, it is recommended to stick to gold coins and bullion as they will serve you under most circumstances.  You must also check the background of the company with which you are doing business.  Finally, it is imperative to ensure that your gold ownership vehicle truly reflects your investment and financial goals and aspirations.

Click Here to Leave a Comment Below 10 comments
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Nick @ Millionaires Giving Money - April 20, 2015

I prefer Gold ETF’s to Gold Mining stocks because the latter has high volatility and can cause quite severe fluctuations to the portfolio. I’ve also invested in Gold Options as a hedge when I thought the market was heading for a correction. Interesting points.

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Shopwriter - April 30, 2015

Looking for next investment and indeed investing in AU really is a must.
Thanks for sharing, currently going through each of these choices..

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    Arnel Ariate - April 30, 2015

    That’s awesome.

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    Goldiraknights - August 9, 2015

    Thanks for the additional tips ,I was always considering gold as a great alternative to real estate and bonds,but I only recently started taking it as a serious investment,I prefer to have physical possession of this assets ,because this is the safest way to hold such a precious metal.

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Sara Killinger - July 7, 2015

I have recently been looking for ways to diversify my portfolio and considered investing in gold. I had no idea that you can sell gold jewelry and coins for cash. Your tips on calculating the gold premium will be especially helpful when trying to determine the best way to invest in gold.

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Skylar Mitchell - July 14, 2015

I think it would be really great if I could invest in gold to help me have some really great long term investments. It sounds like there are a few options to buy gold, but I think that it may be best to just get gold bullion. Then I won\’t have to worry too much about risks, but can instead just have it available in the bank or in my home. That way, if I ever am in an emergency and need money, I could probably sell it to get cash without a problem!

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bryan flake - July 31, 2015

Thanks for sharing these four main ways to invest in gold. I was just thinking of buying some gold coins and letting them sit in a lockbox accruing value. It is cool to see that I can actually manage my gold my way, for the best monetary gain.

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Correy Smith - August 22, 2015

Oh wow, it sounds like investing in the gold buying business sure has it\’s positive moment.s Well, that\’s probably what I\’m most likely to do. Especially during those rough times of unemployment that I\’m in at the moment.

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Andre Beluchi - March 3, 2016

Investing in gold does sound like a good idea to maybe try out. A friend of mine also talked to me about it as a way to start out in playing in the stock market. I’m thinking about investing a little bit when starting out.

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assisted living Broadwater - October 19, 2016

Listen to investors.Whether you like it, investors do have a say in your company. And you need to listen to their advice or suggestion. But that doesn’t mean you have to do what they tell you.

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