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Every financial advisor tells investors to buy gold. Yet precious metals are such a volatile market, you may be wondering why experts recommend people to invest in gold. It’s a good question. But there are significant and valid reasons to include gold and other precious metals in your investment portfolio.
Diversify Your Portfolio
The best and only way to protect retirement funds is to diversify your portfolio. The key to diversification is to adopt investments vehicles that are not closely related. A strong investment portfolio includes a range of stocks, bonds and precious metals.
You are probably familiar with the cliché: ‘Don’t put all your eggs in one basket’. Cliches are so common because they ring with a universal truth that will stand the test of time. The financial system is proven to be unstable, and downturns in the global economy always have a negative effect on pensions.
Gold prices move independently of stock and bonds. In times of economic strife, the price of precious metals rises as paper stocks fall. The correlation with other assets, therefore, ensure your IRA is kept in balance and negates the risk of losing money you have stored for retirement.
Historical Value
Gold has a long and illustrious history as a reliable investment vehicle. Gold has been used as a financial asset for more than 5000 years and is consistently proven to be a safe haven. Furthermore, gold never goes out of fashion and can be held as an investment for generation after generation – and it will consistently preserve its value.
Safeguard Against A Weak Dollar
Fiat currencies are unreliable as an investment. Given paper-based assets are backed by fiat currencies like the US dollar, they are also vulnerable to a drop in value. The US dollar is the world’s default currency, which makes the greenback more volatile than other currencies. Whenever there is a setback in the stock market or trade deficits, the US dollar typically falls against other currencies. To protect their interests, financial institutions always hedge paper-based investment with gold.
Hedge Against Inflation
Gold is a proven to be effective during times of inflation. When the cost of living increases, so does the price of gold. This is because professional traders recognise the importance of gold and consistently buy it to hedge against inflation.
Purchasing Power
Gold has also shown its hand in times of deflation. When prices fall and business activity slows, the economy becomes burdened with debt. During the Great Depression of the 1930’s, gold prices soared because precious metals gave investors more purchasing power.
Gold Demand
Investors recognise that gold is an investment class that offers diversity and growth because it has emotional, cultural and financial value. The demand for gold is always at a premium during a financial slowdown, but even in times of economic growth, there is a huge demand for gold jewellery and a large variety of industries that rely on gold for various applications and products. Furthermore, SPDR, Gold Trust and ETF’s are becoming more popular and help gold bullion to retain its value and strength as an investment instrument.
