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How to buy gold and diversify your portfolio

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There are various ways to buy gold and diversify your portfolio. Getty Images

When it comes to managing finances, not everyone is an expert. So, it's only natural to turn to an expert for advice.

Older Americans especially face a number of unique financial concerns, from unexpected medical expenses to retirement planning.  With the volatility of the economy, many older investors are looking for ways to make ends meet. This can range from cash-out refinancing to reverse mortgages to finding new ways to generate passive income

If the stability of your investments is a primary concern, you may want to consider buying gold

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Here are some of the best strategies for buying gold and some of the ways that it can benefit your portfolio.

How to buy gold

There are a variety of ways and types of gold to buy, depending on your personal preferences and financial goals. 

  1. Physical gold
  2. Gold stocks
  3. Gold miners

Physical gold

When buying a product like physical gold, you should go through a trusted vendor. There are several types of gold you can buy including coins and bars. You can purchase gold coins from many countries including the U.S., Canada and Great Britain. 

The price of each item depends on the amount of gold in the bar or coin, the price of gold at the time of purchase and any other inherent value it has. When you purchase gold, you should think about how you can store it safely.

Consider working with a company like Goldco that can help with your purchase.

Gold stocks

There are several Exchange Traded Funds (ETFs) that track the price of gold. When you purchase a share in one of these ETFs, it's like purchasing gold without the hassle of storing it. 

Buying shares of gold ETFs may also be more feasible for the average investor, who can easily buy or sell shares whenever they need to. You can buy gold ETFs via your IRA or taxable brokerage account. Speak to a financial adviser who can help you

Gold miners

While you can purchase ETFs that track the price of gold, you can also purchase ETFs made up of gold mining companies

However, this may not be better than buying a gold ETF. In some cases, the price of gold is not directly related to the value of the mining company. There may be instances where the share price of a mining company drops, even if the value of gold has not changed or has increased during that time.

Benefits of buying gold

Many investors are interested in buying gold because it doesn't react as strongly to external market forces. For example, gold may be a more stable type of investment than an index fund, which can entice investors looking for a conservative option.

"Since gold is a non-productive, speculative asset, its best use is in response to potential inflation concerns and as a store of value in the event of a collapse in the financial markets," said Noah Damsky, CFA of Marina Wealth Advisors.

Some investors also prefer to invest in gold rather than bonds to preserve income and park their assets safely. 

"The 2022 year-to-date (YTD) value of GLD was down 6.84% - not exactly an inflation hedge, given the CPI was up 6.27% - but it was better than a lot of bond funds," said Mark Struthers, CFA, CFP of Sona Wealth Advisors.

Another benefit of gold is the hedge it provides against inflation. This is particularly helpful in the current economic environment. It's also a sound investment in an uneven economy or ahead of a recession. And it helps diversify your portfolio.

What to know about buying gold

Buying gold is not a solid strategy if you want to grow your money. In that case, investing in the stock market through an index fund is likely better. If you're young or investing for retirement, buying gold can diversify your portfolio by switching up your investments. It helps increase your chances of having your money grow. 

If you do want to buy gold, stay away from purchasing bars or coins. Consumers who are worried about liquidity or accessing their funds easily should stick to gold-based ETFs instead of buying physical amounts of gold. 

Try not to keep more than 1% of gold in your portfolio. That way, your portfolio won't be heavily affected if the price of gold drops significantly. 

Have more questions? Speak to a gold expert today who can help you understand this unique financial opportunity.

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