Should I Buy Gold?



Investors often ask me, "Should I purchase gold?" The answer is simple, for me: Gold should be a part of every investor's portfolio. Whether or not you believe gold is going to appreciate temporary or not is a matter for speculators, but smart investors who desire a diversified portfolio may wish to own gold for its protective qualities. Gold is a wonderful diversifier, and it offers protection against many adverse events available, as we will discuss below.

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Why Should I Buy Gold?



Gold adds another layer with a portfolio filled with stocks and bonds. Gold is a completely different asset class than stocks are. Even the ETF that trades being a stock behaves like gold because it is tied to the price of bullion. As compared to the stock market, gold has behaved inside a roughly inverse fashion to the stock market since 1971 when the gold standard was abandoned. For traditional buy and hold investors, gold provides returns when the stock market underperforms.



Gold Offers Protection worthwhile



Gold protects against inflation. Inflation happens when the money supply is increased, causing each unit of currency to be worth less. Then this happens, prices for products or services will rise. This will cause the cost of gold to rise as well, since it will take more of the dollars (that are each worth less due to inflation) to buy an ounce of gold. The stronger the inflation, the faster gold will rise. Many investors keep some gold inside their portfolio for just this reason.



Gold Investors are Prepared for Disasters


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Since the economy of every nation (and the worldwide economy) is dependant on trust, it can collapse when that trust is eroded. Think about this: the paper that money is printed on is not worth anything. It is worth value as a result of trust that people have within the government and the economic system. The moment a nation defaults on its debt, the amount of money becomes worthless-it is literally not worth the paper on which it is printed. Gold, however, will almost always be worth something. In this way, it is currency. So, some people like to have gold around as a protection against a bank failure, a war, civil unrest, or severe political climate changes or another disaster that might cause a currency decline or failure. Indeed, history demonstrates when a nation is facing war, economic or political uncertainty, or a financial crisis, the demand for gold rises sharply.



Know Neglect the Strategy



You have to decide which kind of investor you are, so that you can determine how to work gold into your portfolio. For example, if you are risk averse, and you do not want to store gold in your house, then you may want to get a gold account, gold certificate, or buy shares with the gold ETF. If you feel gold will appreciate in the long run, and you want to reap higher rewards, you can invest in mining stocks as well as the gold miners ETF, both of which are leveraged, meaning they multiply advances and declines in the gold price. For a buy and hold investor with average risk tolerance, 25-30% of a portfolio invested in gold is affordable. A more speculative investor may choose to hold a higher percentage in gold, and employ more leveraged instruments like gold stocks and futures. There's no right or wrong amount of gold to carry. There is only the amount that is right for you.



Knowing Where to Buy Gold



Owning gold hasn't been easier than it is today. Knowing your strategy, then you can begin to pick out which investment vehicles take advantage sense to you. There are many approaches to own it, several of which can be done with clicks of a mouse. You are able to, of course, opt for gold bullion or gold coin ownership. If you want to own it but have somebody else take possession of it, then gold accounts and/or gold certificates are to suit your needs. If you want to trade it like a stock, then the gold ETF will probably be your choice. For those who want a bit more risk with the potential for higher rewards, you will find gold mining stocks, the gold miner's ETF and leveraged ETF funds.

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