Cryptocurrency may have stolen the spotlight in recent years, but Gold and certain equities have proven a safe bet especially during the pandemic. Savvy investors know that diversification is essential to the stability of any investment portfolio. Choosing to own a variety of different investments safeguards the portfolio’s overall worth. Even when some investments are stagnant or depreciating, others will be increasing in value.
As you consider diversifying your portfolio, think about what a gold investment could do for you. Here are some basics you should know about this strategy, including why it’s worth looking into and some of the forms that your investment can take.
What’s the point of investing in gold? It’s usually known as one of the “safe haven” investments. This term means that gold tends to hold value as the years pass. In some instances, it will increase in value when other types of assets are stalling or losing value.
One of the trends that emerged during the second half of the 20th century is that gold holdings tended to perform inversely to the US dollar. When the dollar moved lower on the world market, gold either remained unaffected or would move higher. Even the amount of change when the dollar was moving higher was somewhat negligible as the dollar recovered.
The result is that gold investments are regarded as steady and reliable sources of returns, even allowing for occasional dips.
Investing in Gold Bullion
What sort of gold investment is right for you? Many investors consider gold bullion or bars. This is a great option for higher ticket investors who can afford to pay for bars that range from a single ounce up to 400 ounces. It also works well when there’s a place to store the gold for extended periods.
For other investors who need to think in more modest terms, bullion may not be the best choice. The good news is there are other forms of gold investments that require less cash at the point of acquisition and don’t require renting all or part of a vault but rather a safety deposit box.
Collecting Gold Coins
Gold coins are definitely worth considering. One of the time-honored ways to amass gold, coins require less room than gold bars and are easier to tuck away in private safes and deposit boxes in domestic and offshore banks.
One of the keys to this approach is knowing what coins are highly sought after in the collector’s world. It is not just about gold content, although that matters significantly. It also depends on the number of a given coin currently known to exist or is in circulation. Choose a certified dealer if you want to start a collection.
Once you understand the market and determine how collectible a coin is, branch out and see what you can find in pawn shops and similar venues.
Choosing Gold Jewelry
Solid gold jewelry is what you want to look for in this category. The last thing you need is anything that happens to be gold plated. As attractive as the piece may be, the odds of it appreciating are somewhere between slim and none.
There are two key points to consider before buying any piece of jewelry. First, how pure is the gold? A higher purity rate translates into greater chances of appreciation. Opt for pieces that are as close to 24 karats as possible. Second, does the piece come with documentation? This helps add to the value of the jewelry.
Opting for Gold Exchange Traded Funds
Gold Exchange Traded funds (ETFs) are somewhat new in the investment world. Entering the market in 2003, these funds are backed by physical gold. As gold prices rise, so does the worth of the EFT. You can choose to purchase the funds alone or as part of a group investment.
The beauty of this approach is that physical possession of the gold is not required. The issuer is in charge of this. As an investor, your responsibility is to monitor the market movement and decide whether to buy more, hold what you have, or sell. An investment professional at your domestic or offshore bank can help you track the current trends and provide information that enables you to make informed decisions.
Gold Mutual Funds
With gold mutual funds, you partner with others to invest in funds that are professionally managed. In many instances, it may not be gold that you’re backing. Instead, it is the activity of gold mining operations. As these operations turn higher profits, your mutual funds increase in value.
This can be a great way to tap into a source that allows you to share the risk with others. It also means you share the gains. Consider this option carefully since it’s often one of the more practical ways to begin investing in gold while keeping the risk to a minimum.
The Potential of Gold Futures
Gold futures can be profitable, but they are also among the riskiest ways to invest. That’s because your investment is classed as a derivative. The increase or decrease in worth is controlled by the price movement of the asset supporting the futures. In this case, the price of the gold that is held.
Opting for this approach will mean working with a domestic or offshore broker. The broker can set up your agreement to buy or sell the underlying asset by a fixed date. That transaction takes place no matter what has happened with the asset’s value. Hopefully, the price of gold on that date will be profitable for you.
Think About Internet Investment Gold
Internet Investment Gold, or IIG, is another more recent option for investing in gold. With this approach, you buy gold intending to sell it at some point. The difference is that you don’t have to store the gold yourself. As part of the deal, it is held on your behalf at a secure location.
If you like, it is possible to take physical possession of the gold eventually. You can also sell the investment, and the buyer also has the option of allowing the gold to remain in storage or take physical possession. As the name implies, all transactions can be conducted securely online.
Is Investing in Gold Right for You?
Gold is a top option for many investors. Is it right for you?
As with any investment, consider how gold assets fit into your overall financial planning. Take the time to look more at the history of gold investments over the last few decades and relate the market movements to what is anticipated for the next several years. You may find that gold needs to be part of your investment portfolio.
Luigi Wewege is the Senior Vice President, and Head of Private Banking of Caye International Bank headquartered in Belize, Central America. Outside of the bank he serves as an Instructor at the FinTech School in California which provides online training courses on the latest technological and innovation developments within the financial services industry and as an Advisory Board Member of Fort Kobbe international depository and precious metals located in Panama City, Panama. Luigi is also the published author of: The Digital Banking Revolution which is available in audio, kindle and paperback formats throughout all major international online bookstores – now in its third edition.