Why more people are investing in gold
There's no doubt times are tough economically. From bank failures to interest rate hikes, the news hasn't been great. It's not surprising, then, that more people are seeking safe, reliable investments like gold.
Gold is a smart addition to your investment portfolio for many reasons, including stable returns and high liquidity. This is true at any time, but it's especially important in times of economic turmoil when investments like stocks tend to fluctuate wildly. In this article, we will explore why investors are increasingly turning to gold and how it can benefit you.
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Why more people are investing in gold
In a shaky economy, gold is an appealing investment. Here are three big reasons why.
It's a good hedge against inflation
Inflation has been a persistent problem for the past couple of years, and it's now at a record high. Core inflation reached 8.5% in March, the highest it's been in four decades. Gold is a reliable hedge against inflation because it's historically held its value despite market ups and downs.
Consider the 2007 to 2009 recession. During this period, the S&P plummeted by 56.8%, but gold prices rose by 25.5%, according to data from GoldSilver. In fact, during the largest stock market crashes in the last 40 years, gold prices have gone up three times out of four.
It preserves your purchasing power
In times of record inflation, the dollar doesn't go as far as it used to. For example, food is 8.5% more expensive now than it was 12 months ago, according to the Consumer Price Index. Energy services like electricity and gas are 9.2% more expensive. Shelter is up 8.2%, and transportation is up a whopping 13.9%.
The average American is feeling the pinch of these increases. The good news is that gold's value typically increases as the dollar's value drops.
For example, in the 1970s, the average federal funds rate rose from 8.98% to 13.82% from 1970 to 1980, according to the Federal Reserve Bank of St. Louis. During this time, the price of gold skyrocketed) from $35 to $850 per share, according to NASDAQ data. This makes gold a good safe haven for your money in times of rampant inflation.
It can also serve as a source of sudden cash in an emergency. Gold is much more liquid than investments like stocks, so you can sell it for quick cash to pay for an emergency or keep the (now pricier) lights on. And since gold tends to be worth more when the dollar is worth less, it could provide even more cash when you need it most.
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It diversifies your portfolio
The key to a successful portfolio is earning the highest returns while safeguarding against losses. The best way to achieve this is by including a mix of asset classes from low-risk, high-reward to high-risk, low-reward.
Gold can diversify your portfolio by counterbalancing riskier investments, such as stocks, which are more susceptible to the whims of the market. While it may not earn the large returns stocks potentially can, it won't suffer huge losses. This helps provide a steady return when other parts of your portfolio take a hit. Experts recommend keeping 5% to 10% of your portfolio in gold for peak diversification.
The bottom line
There are many ways to buy gold, including IRAs, bullion and futures. Whichever form you choose, be sure to do your research, compare your options and speak with a financial advisor if you need additional guidance.
