Investing In Gold As A Diversification Strategy
In these uncertain economic times, people are choosing once again to purchase gold as a diversification strategy
. Gold has always been an attraction to individuals. The yellow metal has consistently been searched out from the beginning of time. The history of the United States and other countries is filled with stories of gold rushes and how these rushes built the countries.
If you have never invested in gold, then I am sure there are many questions which you are probably wondering about. Some such questions, for example, may deal with whether you should actually purchase gold. Another one may deal with the timing, quantity and type of gold to purchase.
The value of gold has consistently gone up and down. In the 1970 and 80's, when the country was experiencing recessionary times, investors flocked to gold and drove the price upward. Many who wanted to invest in gold felt that the price was too high, and the timing was not right. During the bull market of the 90's, gold fell out of favor, and the price was driven downward. Gold is once again at an all time high. The question that investors are now asking about investing in gold is whether or not the price has been driven too high to jump in.
The determination of if now is the right time to invest in gold can only be determined by you, the individual investor. Usually gold is a good short term investment only if the feeling is that the economy is going to continue in a recession. Logically, if the country is going to gain strength, then now is not a good time to invest. If the country does come out of the recession, then the price of gold will plummet and you will be left holding an overpriced asset.
If you feel that the country is still in for some hard times, but that there may be ups and downs in the economic news, then it is probably better to wait and watch for the price of gold to come down a little. After all, it is only the unwise who choose to invest at the high point of an asset class price. Purchasing an asset class just because everyone else is doing it is not a good reason to act. Sometimes waiting is a better strategy than buying.
If you do decide to invest in gold, then you may be wondering how much you should buy. One piece of advice is that you should have 10 to 30 percent invested in gold. This came from a gold related website. I feel that over 20 percent of any one asset class is too much for a truly diversified portfolio. The choice is obviously between you and your advisor.
Whether you purchase gold coins or gold bullion is, in my opinion, merely a matter of choice. I feel that if the item is truly 100 percent gold, then how you feel comfortable holding the asset is what becomes important. Maybe a bag of coins in your safety deposit box feels more comfortable to you. Certainly what ever you choose to invest in should be protected.
One of the biggest mistakes that beginners make is to not familiarize themselves with the choices of gold coins. Too often an investor ends up with a leveraged gold position or a handful of worthless rate coins that they paid too much for. Talking to a broker or someone familiar with gold investing is certainly a good idea. Make sure the individual has credentials and knows what they are talking about.
Another mistake that investors make is thinking that investing in gold stocks is an investment in gold. This is not actually true. If you have invested in the actual gold product and wish to diversify through gold stocks, then that choice is up to you. However, investing in gold stocks is not an actual investment in gold.
Another choice that an investor can make is to invest in gold for the long-term instead of short-term speculation. Gold has climbed over 1000 percent from 1973 to the present. That is not too bad of a return on your money. Thus a choice to invest in gold and hold it may serve you well. As with all investments, be wise and careful with your money. It comes hard and should be protected.
by: Garth Wheeler
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