Does it make sense to invest in gold right now?

Gold investing has experienced a significant growth in popularity over the last few years and for good reason. As an investment asset, gold can be used to build wealth and hedge against conventional market losses due to persistent inflation or a volatile stock market. Those and other benefits, coupled with the relatively low-risk nature of gold investing, have solidified its place in the investing realm. 

But while gold investing can be a good move for certain types of investors, it's not necessarily the right option for everyone. So how do you know if gold investing is a smart fit for your portfolio?  Well, there are several factors to consider.

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When does gold investing make sense?

Investing in gold through a gold IRA, an exchange-traded fund (ETF), gold futures or a physical asset, like gold bars or coins, may be a smart move, depending on your situation.

Here are a few times when investing in this precious metal could make sense for your finances.

You want to preserve your wealth

One of the primary reasons individuals invest in gold is its ability to preserve wealth during economic downturns and periods of inflation. Gold is known to maintain its value over time, acting as a hedge against the erosion of purchasing power caused by inflation. If you're concerned about the long-term value of fiat currencies and want to protect your wealth, gold may be an investment option worth considering.

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You want to diversify your portfolio

Diversification is a fundamental principle of investing. Spreading risk across various asset classes reduces vulnerability to market fluctuations, which, in turn, protects your money. 

As a non-correlated asset, gold can play a crucial role in diversifying an investment portfolio. It often moves independently of stocks, bonds and real estate, which can provide stability during periods of market turbulence. By adding an allocation of gold to your portfolio, you can potentially mitigate risk and enhance your overall returns.

You aren't bothered by short-term price fluctuations

Gold has traditionally been seen as a safe-haven asset. However, the value of this precious metal is not immune to price fluctuations. The value of gold can be subject to volatility due to factors like geopolitical tensions, interest rates and global economic conditions and may not always align with broader economic trends. 

That said, gold is typically a stable asset compared to other types of investments. But if you're uncomfortable with unexpected short-term price fluctuations, gold may not be the best addition to your portfolio. 

You have a long-term investment horizon

If you're investing for the long term, gold can be a good choice. While the prices can fluctuate over the shorter term, gold prices have historically trended upward over time and you could see significant gains if you hold your investment for a long period of time. However, if you're looking to make a quick profit, gold may not be the best asset to invest in.

You understand the opportunity costs

Unlike stocks or bonds, gold does not generate income or dividends, so if you invest a significant portion of your portfolio in gold, you may miss out on potential returns from other income-generating assets. By assessing your investment goals and understanding the trade-offs between the potential returns of other investments and the stability of gold, you can determine whether this type of investment fits your overall strategy.

The practical considerations don't scare you

Gold is a tangible asset, which means that certain types of gold investments can come with certain storage, security and transaction costs. For example, if you're investing in physical gold, you will need access to the appropriate storage facilities or safe deposit boxes, which comes at an additional expense. 

Alternatively, you can invest in gold through a gold IRA, gold futures or gold ETFs, which provide exposure to the gold market without the need for physical possession. This route can be an easy way for beginner investors to get started and there are reputable companies that can help you navigate this type of gold investing.

The bottom line

If you're thinking about investing in gold, be sure to do your research and understand the potential risks and rewards involved. With careful planning, gold can be a wise investment that can help you achieve your financial goals, but you need to make sure it's the right move for your money before taking the plunge. Learn more about your gold investing options here.