What are the pros and cons of investing in gold? – CBS News | Jewelry Dukan

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Gold can be an attractive investment for some investors

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In times of market stress, investors should think twice buy gold. Depending on their financial situation and preferences, this can potentially benefit some people. But not everyone benefits from buying gold, especially when the investment is made out of panic rather than critical analysis.

“Other investors and institutions may have already done the same thing, leading to higher prices in general,” said Gary Watts, VP, financial advisor at Wealth Enhancement Group. “Second, the ideal time to build and allocate a model portfolio would be during less volatile and stressful times when emotions do not control decision-making. Sailors outfit their boats and stock them before the storm.”

However, gold can be an attractive investment for some investors. If you’re wondering if now is the right time to buy gold or if you want to invest in the future, do some research on a precious metals company.

Investing in Gold

In some cases, investing in gold literally means buying gold coins or bars, although it’s not necessarily the most liquid, safest, or easiest way to invest.

“For the average person, owning a fund (ie an ETF or mutual fund) that invests in gold is probably the easiest way to invest,” Watts explained. “There are funds that only invest in gold itself, others that invest in a combination of metals, and still others that invest in mining operations and the like.”

Choosing between these options can depend on an investor’s goals, risk tolerance, and current portfolio composition. Find out more about gold investments now.

For example, some investors may be inclined to stay in the stock market but want exposure to gold and may therefore invest in stocks of precious metals mining companies. These assets could also be attractive by paying dividends.

Other investors may want to diversify their portfolios, for example by buying a gold ETF that is backed by physical gold but doesn’t require investors to own bullion themselves. This type of gold purchase would not generally yield dividends, but the return could come from appreciation in value.

advantages

In the right circumstances, buying gold can have several benefits.

  • Possible inflation protection: Purchasing power falls as inflation rises. So when you have cash, you are effectively losing money. Gold, on the other hand, is often viewed as a hedge against inflation. When inflation rises, so does the value of gold, which could be an incentive to invest some money in this precious metal. Not everyone agrees, and gold doesn’t always rise when inflation rises, but it could still be an investment factor. Falling real interest rates (which subtract inflation) may correlate with rising gold prices, reports the Federal Reserve Bank of Chicago. If you can’t earn much, if any, real interest from other types of assets, gold might be more attractive.
  • Possible hedge against difficult economic conditions: In addition to the potential hedge against inflation, buying gold can potentially help investors weather difficult economic conditions given that the price could rise during these periods. An analysis by the Chicago Fed compares gold prices to a University of Michigan study of consumer expectations. As the proportion of consumers with pessimistic expectations increases, gold prices are positively correlated. That doesn’t mean gold will always rise when the economy looks shaky, but it could potentially help those who plan ahead.
  • Opportunity for diversification: Some investors buy gold or silver (or both) while working toward building a diversified portfolio. Instead of having all your money tied up in one asset class, spreading it across different types of investments could potentially help you better manage risk and return. “Gold – or other precious metals – can make sense in the right allocation in a balanced portfolio, but of course the allocation will always depend on a number of other factors such as time horizon, investor experience, volatility tolerance, cash flow needs, etc. ‘ Watts said.

Disadvantages

While gold can help increase balance and offer some investors protection, there are also risks to watch out for.

  • Possible long-term delay in performance: While gold may temporarily outperform other assets, it may not withstand long-term price increases as well. If you try save for retirementFor example, if too much money is invested in gold, long-term gains could be held back as gold lags stocks. As Watts points out, so far in 2022, the S&P 500 index has fallen more than a popular gold ETF. However, comparing the two on a five-year basis shows that the stock index has risen much more than the gold ETF over this period.
  • Fear-Based Decision Making: Another potential downside to gold is that it can tend to turn to this asset when markets falter. That can lead investors to make decisions based on fear rather than what’s best for their long-term success. “I’ve seen the gold question pop up in every single market downturn since I got into this job,” Watts said. “All too often, retail investors or home improvement individuals react with emotional decisions and end up hurting themselves… Panic and hope are not strategies.”
  • Complexity of adding an asset class: If you are new to gold and the precious metals asset class as a whole, it may take some time to get up to speed. Choosing this asset class over others like traditional stocks or fixed income isn’t just about picking which one you think will bring more profit. There are also considerations of risk, cash flow, taxes, etc. So adding this asset class can add a bit of complexity to your investment decisions as well.

bottom line

Buying gold may make sense for some investors, but it may not be something you want to rush into. Take the time to consider your options, and if you’re interested in investing in gold, you can figure out how it fits into your overall investment strategy.

Talking to a professional can also help you determine if and how gold fits into your portfolio.

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