The top gold investing mistake beginners should avoid
The economic news in recent days has been encouraging, if not quite where economists would like it to be just yet. On Tuesday, the Labor Department announced a further cooling in the pace of inflation. That news preceded Wednesday's announcement that the Federal Reserve would be pausing their interest rate hikes after 10 increases dating back to March 2022.
"Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy," the Fed said in their press release. While there is still work to be done to get to the Fed's inflation target, things seem to be moving in the right direction.
That said, there is still a lot of uncertainty about where the economy is heading long-term. In this economic climate, it can be helpful for investors to diversify their portfolios and spread out their risks. One effective way to do this is with precious metals, specifically gold.
Gold investments can safely and smartly help stabilize your investments — assuming you do it correctly. As with any investment, there are some mistakes beginners should avoid when investing in gold, but arguably one of these mistakes tops the others.
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Beginners should avoid this top gold investing mistake
As mentioned, one of gold's major benefits is its ability to diversify your investment portfolio. The key word in that sentence is "diversify," as in you should have a portfolio of varied investments in different amounts. Because gold is considered more of a safe-haven asset than an income-producing one, it's important that beginners limit how much money they put into gold. Specifically, most experts recommend limiting the amount of gold in your portfolio to 5% to 10%.
This is important to get right — and could prove to be problematic if you go outside of that range, particularly if you're a beginning investor or someone younger. Younger people can benefit from investing in gold but they should feel free to take more risks by putting more of their money into stocks and other investment types. Younger investors (and most other beginners) have greater potential to make up for any major losses incurred while older investors won't have as much flexibility. This doesn't mean that gold investing isn't smart for seniors (it can be). But it does mean that the benefit from investing in the precious metal can most reliably be obtained by keeping the investment allocation relatively small, regardless of age.
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Other gold investing mistakes to avoid
While over or under-investing in gold may be the biggest mistake beginners should avoid, it's not the only one. Here are two others:
Timing the price of gold
While the price of gold hit a record high in 2020 — and has come close to meeting that figure this year — no one knows for sure where the gold price is heading. Accordingly, you shouldn't try to time your investment to buy it low and sell it high. Remember, gold is more a way to protect your existing money than to make large, new amounts. So avoid timing the price and just invest as a protective measure instead.
Choosing the wrong type
There are many ways to invest in gold, ranging from a gold IRA to gold ETFs to physical gold and more. Each type has its unique pros and cons. Understand what you're trying to accomplish by investing in gold (and what you're trying to avoid) to make sure you're investing in the exact right type that will benefit you most.
Ready to get started? Learn more about investing in a gold IRA here now.
The bottom line
It can be smart to invest in gold in any economy but particularly one still on uneven ground, dealing with inflation and high interest rates. To get the most out of this investment type, however, it's helpful to know which mistakes to avoid. Namely, investing too much of your money into the precious metal — and not enough in other, income-producing investments — could be problematic. Instead, stick to a 5% to 10% range and enjoy the benefits and safety a gold investment can provide for years to come.
