In this economic downturn, many investors are beginning to worry about their investments in assets such as real estate and the stock market. With stock prices plunging in an extremely volatile environment, investors are looking for new and more reliable assets in which to invest. Less risky investments are needed in order to build financial portfolios and gain money from investments, especially in regards to retirement funds such as IRAs and 401ks.
Gold is a precious commodity that has steadily been increasing in price and value over the years. In fact, the past decade has shown a 300% increase in the price. The reason for this is due to the US dollar becoming weaker and weaker. Since gold is bought and sold in US dollars, the decrease in value of the dollar is making gold become more expensive. In addition, the demand for gold is increasing, which in turn drives prices higher.
As mentioned before, investors are looking for less risky assets to be a part of their financial portfolios. Many of them choose gold as a non-traditional asset due to the benefits, such as its ability to hedge risk in your portfolio. How does it hedge risk, you may ask? Well, for starters, it can be liquidated for cash. Gold is increasing in price; therefore, when you decide to sell, you will receive a higher ROI. Also, gold has outlasted many other types of assets, even during times of economic strain, such as the real estate bubble and the oil crisis. Gold has been increasing in value over the years and has not devalued, unlike the US dollar.
There are essentially three different ways that you can invest in this precious metal: 1) buying gold bullion or coins, 2) purchasing a gold ETF (exchange-traded fund), or 3) buying shares in gold-mining stock.
Each of these investments has their own benefits and downfalls. Purchasing an ETF, for example, allows you to trade gold like a stock, but the price is fixed and does not change. This makes it perfect for having in a financial portfolio. Owning physical gold is also beneficial because gold is actual money that will not devalue. However, a downfall is that you need a large jump from what you purchased to what you sell it for in order to make a profit. This poses a problem because physical gold is known to have a wide spread between asking price and bid price. Buying shares in gold-mining stock is not only a lot less risky than owning actual gold, but you will also still be able to be a part of the growth in value of the metal.
With stock prices dropping, now is a great time to invest in gold. It is a commodity that is actual money that will not decrease in value like paper money will. Investors are using gold as a hedge to protect their financial portfolios from the next economic crisis. Although they are not sure when that will happen, they are protecting themselves now in preparation of such an event. Just be sure to not invest everything that you own into gold; wise investors allocate only a portion of their finances to it in order to have a diversified portfolio.