Gold is a popular investment during times of financial turmoil. Over the last few years we have seen gold rise to its highest price in decades. But do don’t be fooled, investing in gold has its drawbacks just like any other investment. It is important to do your homework and make sure you are making the right decision.
Gold traditionally moves inversely to the dollar and when the dollar begins to decline in value because of a rough economy, gold usually begins to rally. The problem with the dollar bill is that it isn’t backed by anything of real value. In actuality, it is nothing more than a bunch of numbers and symbols printed on linen paper with fancy ink. Gold, on the other hand, has actual value and cannot be created.
Many investors consider gold to be a safe-haven investment because historically, gold has kept its value when the dollar has not. Because gold is more likely to keep its value, it could be a potential way to cushion your savings in case of inflation.
Gold has many drawbacks as well. One such drawback is the instability of the value of gold. Because the yellow metal tends to do well in a poor economy it may decline in value during a real estate or stock market rally. Another drawback is the fact that, unlike many stocks, gold does not pay dividends on investments.
Ways to Buy Gold
There are several ways to buy gold as an investment. If you have the storage capabilities and prefer to have accesses to your gold then consider purchasing physical gold. This can be in coin of bar form. If you do not have proper storage capacities an EFT may be more appropriate.
Numismatic coins are collectible and often purchased from a coin dealer. If you are planning on buying numismatics than do your research: compare prices and read as much information as you can about the coins you are planning to purchase. It is also important that you find a reputable coin dealer.
Bullion coins are recently minted. The American Gold Eagle is a primary example of a recently minted gold coin. These coins value is reflected by their actual weight and content. They can be purchased from The U.S. Mint, the official mint of the US government.
Bullion bars are most often associated with movies and criminals. They can be purchased from a private firm. The value of a gold bullion bar is reflected in their weight. Bars can be counterfeited easier then coins, so be sure to pick a reputable firm when investing. Bars often bear special markings for authenticity.
Exchange traded Funds (EFTs) are sold on the stock market. Each share that is purchased of an EFT represents a percentage of ownership. You can purchase EFTs through a broker.
Gold futures have the most potential for generating a lot of money with rather little money down but are very risky. In short, gold futures are betting that gold will gain or lose money by a certain date. If you play your cards right or you are feeling lucky, you can make a lot of cash or be left with a pile of debt. To invest in gold futures, contact a full-service broker.
Mutual funds are more conservative and involve a fund manager investing in a series of stocks and bonds. Your investments will be diversified in order to decrease risk. Mutual funds can usually be purchased by brokers or other financial institutions.
There is some debate over how much to invest in gold. Gold is often less predictable than many think but we can take note of certain trends. A safe investment in gold would be around 5% of your total investment portfolio. A more substantial investment would be in between 15% and 25% of one’s total portfolio.