- Date : 25/09/2023
- Read: 3 mins
Gold offers inflation protection and diversification but is volatile, lacks income generation, and may have opportunity costs. Allocate 5-10% in your long-term portfolio for resilience.
Long-term investment portfolios are meant to secure your future. But what kind of assets or stocks should be incorporated into your portfolio? Gold has a high face value and has been marked as an investment pioneer for centuries. Gold investment can be rewarding, but simultaneously, it is highly volatile, so it can be a risky choice.
- Gold investments offer protection against inflation, diversity portfolios, and maintain value during economic turmoil.
- Gold is marked by high volatility, lack of income generation, and potential opportunity costs.
- Consider allocating a modest portion (around 5-10%) of your long-term portfolio to gold for enhanced stability and resilience.
Why is a gold investment beneficial?
- Gold can safeguard you against inflation. When currencies like the US dollar decrease due to high prices, gold's value increases, safeguarding you against inflations.
- By investing in gold, you can diversify your portfolio. The price of gold does not necessarily align with market stocks, thus making it an independent, uncorrelated asset that can potentially make returns when the market is down.
- Gold has a finite supply, thus limiting its rate in the market. Consequently, gold has a long-term value for which it is considered the safest asset to combat economic or geopolitical turmoil.
How are gold investments risky?
- Gold is highly volatile when it comes to its price. It can be the best during a crisis, but factors like interest rates or currency changes can easily influence its value.
- Gold is a non-income-producing asset. Investments in stocks and bonds generate returns in the form of interest and dividends, unlike gold, which does not give you any immediate returns. Also, charges are applied to store and insure it.
- Money invested in gold could be used to purchase other stocks or bonds that will offer income in the future. There is an opportunity cost in the long term, where the return on gold can be lesser than the return on other investments or what you expected.
To sum up, gold can be one of the safest investments for your long-term portfolio but should not be the primary focus. It is advised to allocate a small portion (approximately 5-10%) to gold as a diversification strategy. This balanced approach can enhance the overall stability of your investment portfolio.
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.