Gold investing tips beginners should know, according to experts
In the current economic climate, where inflation and interest rates are elevated, many investors are taking a closer look at their portfolios.
While you don't necessarily want to react out of fear or try to time the market, you might revisit your portfolio to see if your investment strategy fits your current needs. Perhaps you've been under-diversifying, or your risk tolerance has changed. In these types of situations, you might turn more toward assets like gold.
"Probably the primary reason someone would consider investing in gold is for additional diversification. Gold has a low correlation with other asset classes like stocks and bonds, meaning it doesn't move in sync with these other traditional investments," says Tyson Romanick, Chartered Financial Analyst, VP portfolio manager at Baker Boyer.
Another reason to invest in gold is to have an asset that can potentially hold up amidst broader turmoil, with many investors using gold as a store of value. That being said, there's no guarantee gold will perform well during difficult economic environments, and investors need to understand the risks along with the potential rewards of investing in gold.
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Gold investing tips for beginners
If you're new to gold investing, consider the following tips:
Limit your precious metals investment to 5%-10% of your overall portfolio
A common rule of thumb is to limit your investment in gold and/or other precious metals to 5%-10% of your total portfolio. Investors can differ in terms of what that mix of precious metals looks like, but gold is often a notable component.
"Gold should be a part of a diversified portfolio, not the whole thing," says Taylor Kovar, certified financial planner, CEO at The Money Couple and Kovar Wealth Management. "For the 5%-10% rule of thumb, I almost always steer people toward a mix of silver and gold. Both have tremendous use cases, fit just about any reason someone wants to invest in precious metals—diversification, economic collapse, inflation hedge—and are easy to acquire and trade," adds Kovar.
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Do your research
To get more out of gold investing, take the time to research this asset class.
"Just like any other investment, you shouldn't invest in gold without doing your homework," says Kovar. He recommends learning about factors that influence the price of gold, "and then slowly build it into your portfolio."
Remember, market timing can be tricky and is often not recommended for ordinary investors. But getting a better understanding of how gold works as an investment can affect your asset allocation and ability to stick to your strategy.
"The best way to start would be to learn more about gold and other precious metals' significance within the broader market landscape," says Oerta Trepca, basic materials sector analyst at Nasdaq IR Intelligence. "Precious metals are one of history's oldest asset classes and gold is seen as a store of value or safe haven in times of tumult, such as geopolitical uncertainty, economic downturn or pandemic."
It's also important to understand why gold might not always perform as some might assume.
"Gold is regarded as a hedge against inflation but that trading strategy has become trickier in an environment where interest rates remain high, which increases an investor's opportunity cost of holding non-yielding assets like gold," adds Trepca.
Compare different ways to own gold
Part of doing your research also means looking into the different ways to own gold or gain exposure to this category.
"There are many ways to invest in gold depending on your risk tolerance and preferences, but my favorite is to buy physical gold bullion," says Kovar. "It is a great conversation starter, fun to have on hand, and if you are investing as a hedge against an economic collapse, you actually have access to it."
However, owning gold bars or coins can come at a cost.
Gold investors "should research the implications of such an investment as most methods of buying gold bullion will have associated costs like premiums and storage fees to consider," says Trepca.
Investing in an ETF or mutual fund that owns physical gold, rather than holding it yourself, could be an alternative, she adds. Similarly, a fund could provide exposure to the gold mining industry.
"Investors can also choose to buy shares in a particular gold producer if they are interested in exposure to a specific gold project or mine. Another option is investing in gold royalty companies that pay the producers for a right to a percentage of revenue or production," says Trepca.
Clarify your goals
Beginner investors in gold should also make sure to clarify their goals for investing in gold. That can influence how much of your portfolio you decide to allocate, for example, such as if you want to lean more toward 10% than 5% to start.
"If they are looking for extra diversification or preservation of wealth, it might make sense to add a reasonable amount," says Romanick. "If it's more for speculation or short-term performance chasing then they might want to reconsider. Gold can be a volatile asset so one needs to understand the risks of holding it."
Your goals can also influence the format of how you invest in gold. If you want to gain peace of mind during difficult economic times, for example, you might lean more toward acquiring gold bullion.
"Gold is also a tangible asset that you can physically hold. Some investors prefer this as it provides a sense of security and ownership," says Romanick.
The bottom line
Overall, investing in gold does not have to be overly complicated, but beginners should take time to understand the asset and consider different ways to invest in gold. Focusing on what you hope to get can drive your decisions.
"To determine if gold fits into your portfolio, consider your risk tolerance, investment goals, and timeframe," says Kovar. "Gold might be a worthy addition if you're seeking diversification, stability in volatile markets, or protection against inflation."
In many cases, speaking with a financial advisor can help you with this determination, but you can also take time to review your circumstances yourself. "The best way would be to talk to their financial advisor and see if it fits their personal investment objectives and overall financial plan. If they don't have a financial advisor, they may want to ask themselves why they are considering it in the first place," says Romanick.
