Gold investing tips from financial experts

Investors often turn to a gold investment as a way to diversify and protect their portfolios. Gold has a long-standing reputation as a safe-haven asset that can weather economic uncertainties and provide steady, reliable returns.

But, as with any investment, there are some things to keep in mind to make sure the precious metal pays off for you. To help you do just that, we asked some financial experts for their advice when it comes to gold investing.

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Gold investing tips from financial experts

Here's what experts recommend for prospective gold investors.

Choose the right investment type

There are many ways to invest in gold, and the best one for you depends on multiple factors. Each type of investment has its pros and cons, so it's essential to understand which fits your investment goals and risk tolerance.

"The type of investment type to use should be determined by a few different variables: cost, ongoing management fees and liquidity," says Dana Menard, CFP, founder and lead financial planner at Twin Cities Wealth Strategies. "Each type will have different variables."

Some financial experts we recently spoke to most frequently recommended investing in gold via exchange-traded funds (ETFs) and mutual funds. 

As Noah Damsky, CFA and principal of Marina Wealth Advisors advises, "If clients have decided to add gold to a portfolio, I would only use gold ETFs that are backed by physical gold storage, such as GLD. It's cost-efficient, liquid and doesn't transact with markups such as the physical gold/coins market. Gold stocks introduce additional risks of running a business such as exposure to specific mines and management teams."

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Don't invest too much

Gold provides many benefits for investors. However, to get the most from a gold investment, it's important to know how much you should invest.

As a general rule, experts recommend allocating 5% to 10% of your portfolio to gold. This allows you to enjoy the safety gold provides while maximizing returns from other, potentially more risky assets, such as stocks.

"Commodities, of which gold is just one of many, have done a decent job of keeping up closely with inflation over the long term, but there are periods of volatility where commodities have underperformed, so I recommend using gold as just a portion of the portfolio where commodities make up one piece of the overall fixed income portfolio keeping a long-term view," says Menard.

Focus on long-term benefits

Gold is not meant to be a "get rich quick" investment. The asset performs best when you hold it for years, if not decades.

"Gold's principal function is as a diversifier of risk," says Damsky. "It's not a productive asset, but it can be a hedge against disaster or currency devaluation. If you can forgo some income/growth of traditional stocks and bonds and are concerned about catastrophic risks, gold may be right for you."

Because it's best used as a long-term investment, trying to time the market isn't a gold investment strategy that many will benefit from.

"Gold investors should not try to predict short-term price changes for gold or any other investment asset," Robert Michaud, CIO of New Frontier Advisors, previously told CBS News. "The nature of markets is that prices reflect currently known information, so investors should focus on having a suitable portfolio for the long term."

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The bottom line

Investing in gold can be a rewarding experience for investors who take the time to understand how to do it wisely. By choosing the right type of gold investment, knowing how much to invest and focusing on the long-term benefits, you can make informed decisions and maximize your success. Remember, investing always carries some risk, so it's essential to do your research and consider consulting a financial advisor about your financial plan before making any investment decisions.