In these difficult economic times, many investors are considering ways to further diversify their portfolios. Among the possible alternatives is what has come to be known as a “safe haven” asset. Gold is one such asset. It can provide a hedge against inflation and the threat of a falling dollar. For this reason, gold is often the resource of choice for people living in turbulent financial markets and unstable political climates. Before entering the gold market, however, ask yourself a number of key questions about your goals, your current portfolio and the economic outlook. The following sections are some issues that you might consider before investing in gold.
Value of the American Dollar
Take a closer look at your overall investment portfolio. Does it include assets that offer a hedge against inflation and a potentially plunging dollar? According to the U.S. Dollar Index, American dollars have lost 37 percent of their currency value since 2001 and this decline may continue on the basis of current economic policy. If you’re worried about future inflation and the weakening dollar, gold is definitely worth considering.
The Comfort of Physical Assets
Does a physical asset – in other words, something you can hold in your hand – give you a feeling of greater comfort and confidence about your portfolio? If so, consider buying gold. As a precious metal, gold has a tangible value.
Long Term Vs. Short Term Investments
Are you able to invest in gold for the long run? Gold is considered a long-term investment, to be held for at least three to five years – or, better yet, up to 10 years. You should be prepared to hold the investment for as long you need to, without cashing it out, as the market may dictate a longer or shorter duration.
Diversify, Diversify, Diversify
Diversification is crucial to any healthy investment portfolio. Don’t put all your eggs in one basket, even if it’s a safe haven. What is the amount of gold in your portfolio? Gold should be considered a diversification strategy, not a “bet the farm” scenario. It is generally advisable to allocate 20 percent of a total portfolio to gold investments. Some advisers may suggest a slightly different allocation, based on the current economic trends.