When you think of gold, the first thing that comes to mind is probably gold coins or gold bricks such as hidden treasure that you have seen in movies. Gold was our very first currency. Believe it or not gold still provides a pivotal role in our society today. In this article, I’m going to be breaking down the uses of gold and showing you how you can invest in it directly.
The end is near!
When I think of gold my head automatically thinks to conspiracy theorist who believe there will be a worldwide financial collapse or severe economic epidemic. These are the people that hoard gold coins and bars because they believe all other forms of currency will be useless. Although they are a bit extreme, they are actually correct in gold being a safe haven. Gold is one of the safest investments when we are at war or have down economic times. If you really think about it, gold cannot be printed, therefore it is not subject to negative outcomes of “paper currency” if there was some sort of global meltdown.
Provides Proper Diversification
In the article, Investment Tips We Can Learn from Pablo Escobar, we learned that we want to invest in different asset classes to reduce our risk and improve our portfolio’s performance in the long-term. Gold is a commodity that has performed inversely from stocks for many years. The price of gold has had a positive return in each of the bear markets of stocks since 1971. This is a great way to hedge against your stock positions if there is a downturn in the market. Most diversified investors have approximately 9-12% of their portfolio in commodities such as gold.
Gold’s price tends to rise in inflationary periods and times when consumer prices are rising. As the cost of living rises so does the value of your gold investment which ultimately protects your purchasing power. Keep in mind a strong US Dollar will cause the price of gold to DECREASE.
Ways to Invest
There are 3 main ways that you can invest in gold:
- Physical coins/bars
First, while buying physicals coins and bars is possible, to me it just does not seem ideal when you have stocks and etfs right at your fingertips that will give you the same exposure. Conspiracy theorist would scoff at this statement, knowing the collapse of the financial market would wipe out this investment because technically, it is electronic.
Secondly, you can invest in companies that mine for gold directly. Their value will depend on how the company is doing independently and the overall prices for gold.
Lastly, you could buy a gold etf which represent a basket of gold companies or tracks the underlying commodity price itself. If you do not recall what an etf is then check out my article, Buying Instant Diversification. Personally, I believe this is the best option because it provides you with more diversification than just one gold company.
Homework: Look up 3 gold stocks or etfs and see how they have been performing recently. Check out the link below which provides the most updated spot price of gold.