How much money should I invest in gold?
Having a diverse portfolio is important, especially nowadays. With higher consumer prices, inflation and an up-and-down stock market, spreading your investment dollars out — and minimizing too much exposure in one asset class— is more important than ever.
For many consumers, investing in gold can be a smart way to diversify a portfolio, and there are several ways to do it, including physical gold, gold IRAs, gold stocks and more. But how much exactly should you allocate to gold? Investing the right amount is key to getting the greatest return.
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Why gold can be a smart investment
One big perk of gold is that it's not tied to other asset classes, so when one market is struggling, gold tends to hold strong.
"Historically, gold has been considered a good diversification tool for investor portfolios, as gold is not highly correlated with other typical asset classes like equities or fixed income," says Daniel Milan, managing partner and investment advisor representative at Cornerstone Financial Services in Southfield, Michigan. "It's important to diversify with assets that are not highly correlated with each other."
Gold's scarcity is important, too. This helps ensure it holds its value — and often grows it — both now and in the long run. That scarcity helps gold maintain it's value, providing stable returns during otherwise volatile economic conditions.
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The right amount of gold investments
Generally speaking, experts recommend investing anywhere from 2% to 10% of your portfolio in gold, but in truth, there's no hard and fast answer for how much you should hold in gold investments. The reality is that the right move depends on how much you're looking to grow your money, your time horizon and your overall exposure to risk in other parts of your portfolio.
If you need to see serious returns on your cash — or returns in a short period — buying a lot of gold probably isn't the best move. Gold is largely seen as a safe haven investment. While it will help you retain your wealth's value over time, it won't result in big returns (and particularly not in the short haul).
"Gold offers a physical-value alternative to paper assets, like fiat currencies, stocks, and bonds," says Ilya Spivak, head of global macro at investing network tastylive. "Currencies and bonds pay interest, and stocks pay dividends. Unlike those assets, gold confers no yield."
If you're exposed to a lot of risk in other parts of your portfolio, you may want more gold than other investors might need. This would preserve your wealth should your investments in other categories lose value.
"Gold generally performs well when equity indexes are falling and has a negative correlation to equites in times of market turmoil," says Amelia Bourdeau, managing director of market strategy at Diamond Standard. "A diversification into gold is a way to hedge macro risk, whether it be economic, systemic, or geopolitical."
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Consult a pro
Gold investing can be smart for some portfolios — but it's not right for everyone.
If you're not sure gold is the right move for your financial goals, or you're just unsure how much gold to invest in, consider consulting a professional investment advisor. They can also help you determine the best route to investing in gold (gold IRA, gold bars, gold mining stocks, etc.).
