Should you diversify your gold investment assets? Experts weigh in
The price of gold has achieved new all-time highs multiple times in 2024, spurred largely by increased demand, and not just from individual investors. Central banks are turning to gold for many of the same reasons as investors: to offset risk by diversifying their portfolios and to act as a hedge against inflation.
Gold is sought after as a portfolio diversifier because it has a low correlation with stocks, bonds and other traditional assets. As such, it often responds to economic conditions differently and may hold up better than other assets against a weakening dollar.
Fortunately, there are several types of gold assets you can choose from if you want to diversify your portfolio with a slice of this precious metal. But should you also invest in different gold options to diversify the gold assets you hold in your investment portfolio? We asked gold experts for their opinions.
Considering the benefits a gold investment can offer now? Learn more about your top options here.
Should you diversify the gold assets in your portfolio?
"Investors should always diversify gold assets, a simple arrow in a quiver of exposure to other tangible materials," says Robert Moon, managing director and private advisor at Rockefeller Capital Management. He says it's wise to weigh your gold distribution equally. "Do not have an outsized weight in gold versus other materials—simply equal weight to all that one chooses. Outsized bets in any portfolio will lead to regrets."
Gold assets often rise and fall with the price of gold bullion, so investors can get exposure to gold with various asset types. Still, it's wise to exercise caution, as some assets may be more risky, as John R. Gilbert, the executive vice president at the investment firm Bradley, Foster & Sargent, points out. "Gold investments generally have a high covariance with the price of gold bullion itself. But most investors should avoid highly volatile vehicles such as exploration stocks." While gold mining stocks can be lucrative, they come with significant risks that may not suit your risk tolerance level. In that case, you might balance your gold assets with more stable options.
See what other gold assets you can diversify online today.
What are the best gold options to diversify a portfolio?
If you want a well-balanced gold portfolio, you have several options to consider, each with certain advantages that may or may not benefit you. If you're looking for security, you might consider holding physical gold. As Chris Gaffney, president of World Markets at EverBank, emphasizes, "A portion of your gold assets should be held in physical form, either at a trusted custodian or in a home safe or vault. This gold can be viewed as your 'catastrophe insurance' and can be accessed even if there are larger problems in the financial systems." Gaffney acknowledges that while physical gold provides a safety net, it can be costly to maintain, so consider balancing it with unallocated pooled accounts for efficiency.
One good option for new gold investors is gold exchange-traded funds (ETFs). These funds pool together various assets like stocks, bonds or commodities like gold or silver. "The gold ETF is the best, most efficient and cheapest asset for those new to gold to invest in," says Moon. "The gold miners' ETF is a 'back-door' method, but the linkage is not as tight." You can purchase ETFs through a brokerage, stockbroker, robo-advisor and the like, which makes it easy for beginning gold investors to get exposure to gold.
Gold IRAs are yet another option to diversify your gold and retirement portfolios. If you're already saving for your post-working years through a pension, traditional or Roth IRA or another retirement plan, you might consider adding a gold to the mix. Gold IRAs allow you to hold gold and other precious metals. These IRAs are self-directed and come with the same tax benefits as traditional IRAs. However, there are a few differences you must be aware of so it's important to understand how gold IRAs work before proceeding.
Learn more about diversifying your portfolio with gold here.
The bottom line
Gold is a popular asset many investors utilize to diversify their portfolios, but you may want to diversify the gold within your portfolio with more than one gold asset. Before making any investment decisions, determine what you want to achieve with the investment, how much you can afford to invest and your risk tolerance level.
It's also wise to consult your investment advisor or tax accountant to make sure the investment aligns with your long-term financial plan. And while gold is often referred to as a safe store of value over the long haul, it can be volatile in the short term. Many experts recommend allocating no more than 5% to 10% of your investment portfolio to gold and other precious metals.
But if you want to take advantage of the benefits gold offers, including portfolio diversification and the potential to hedge against inflation, consider starting with a small investment. Whenever investing in gold, make sure you use only the most reputable gold dealers and financial institutions.
