Why you should add gold to your portfolio
More and more investors are turning to gold lately. The World Gold Council reports that global demand for gold was up 18% in 2022, the "strongest year for gold demand in over a decade." As a result of increased demand, gold prices have risen to over $2,000 per ounce, approaching the record high set in 2020.
It's not surprising that gold is a hot commodity right now. One of the oldest forms of currency, it has retained its value reliably through market turmoil that tanked other assets. When the dollar loses value and stocks plummet, gold tends to hold steady, providing some much-needed protection for investors' portfolios.
What makes gold such an attractive investment, and how can it benefit your portfolio? That's what we'll explore in this article.
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Why you should add gold to your portfolio
Gold is a smart addition to your portfolio for many reasons. Here are three of the big ones.
It shines when the economy is weak
In periods of inflation and recession, gold prices tend to rise, providing a welcome counterbalance to the dollar's decreasing value.
"Precious metals, like gold, typically thrive in environments rife with uncertainty, whether it's geopolitical or monetary," William Bevins, CFP, CTFA, previously told CBS News. "Gold can become attractive during times of financial stress, like during times of low stock market confidence or troubles within the banking system."
A Chicago Fed analysis comparing gold prices to consumer expectations found that the more pessimistic consumers are about the U.S. macroeconomy, the higher the price of gold tends to go as they turn toward it to protect their money.
The common belief that gold is a safe haven in a bad economy is born out of the numbers. For example, in the biggest stock market crashes of the last 40 years, gold prices went up six times out of eight, according to GoldSilver. Gold is a smart investment in any economy, but it's especially advantageous when things are shaky.
It diversifies your portfolio
A successful portfolio weathers all economic storms. To ensure the best performance, you should hold assets with varying degrees of risk and reward. This is known as diversification.
Assets like stocks may bring big returns, but they're also highly volatile and can lose value fast based on a number of factors, from bad press for a specific company to overall market conditions. To offset these losses, you should also hold more conservative assets, which may only provide a moderate return but provide it reliably when other assets are faltering. Gold is one such asset.
Experts recommend keeping 5% to 10% of your portfolio in gold for the best results. Request a free investors kit now to learn more about your gold investing options.
It's more liquid than other investments
You'll likely get the highest return from your gold investments by holding them over the long term. That said, there may be times when you need some extra money. Gold is highly liquid compared to other assets, which means you can quickly sell it to generate cash for any purpose.
This can be especially helpful if you need cash in a tough economy. Since gold is often worth more when the economy is weak, you might be able to get more for your investment than you could if you cashed it in at another time.
The bottom line
From reliable returns to protection in times of economic trouble, there are many reasons why you should invest in gold. If you're ready to add gold to your portfolio, you have several options to choose from. You can get started here now!
