If you are looking for a way to diversify into a valuable tangible asset, you might want to consider investing in gold. For many decades, gold has proved to be a valuable store of value over some other forms of investments like stocks and cryptocurrency, especially in terms of security. Furthermore, if you believe some doomsayers, then you will likely agree that the US dollars would soon become completely worthless.
That means investing in gold now could be a great advantage to anyone. However, every investment comes with a risk – even gold. So before you go ahead to include gold in your investment portfolio, you should carefully consider its pros and cons. In this post, we have highlighted some advantages associated with investing in gold as well as some challenges that may come with it.
How to Invest In Gold
The thing is, even after deciding to invest in gold, there is a need for you to get familiar with the different gold products available so you know which to purchase. There is a variety of choices available for investors, and below are some of them:
- Physical gold: When most people think of investing in gold, they immediately imagine holding a gold bar in their hands. Yes, you can invest in gold bullion which is a physical form of gold. You buy it and store it in a physical place – of course, a safe place.
- Gold funds: This describes the shares you owned in gold-related businesses. Some businesses that deal with gold mining or processing often sell out shares to interested individuals. This can come in form of mutual funds or ETFs in gold companies.
- Gold stock: This is another common form of investing in gold. Here, you will be buying stock in gold mining companies and then become a part-owner of such a company. Although you won’t have the privilege to own real gold, you will be having a share in the company. Of course, being a part of such a company also comes with a number of risks too.
Gold Stocks vs Physical Gold
This two are always a bone of contention for investors looking to invest in gold. This is the deal. Physical gold tends to have lower volatility compared to other assets. This means its price is more stable, fluctuating only with tight ranges. Because of this, the returns on physical gold are not as much as the returns on gold stocks.
Another difference – and perhaps the advantage of gold stocks over physical gold is that gold stocks are more liquid and so can be more easily sold than physical gold. And again, if you are looking for quick gain on your investment, physical gold may not be the best option for you. Gold stock is.
What Are the Pros of Investing In Gold?
#1: It’s an inflation hedge
Inflation is real, and when it happens, it comes with a lot of fear to investors because it always leaves a toll on their money in the bank. Dollars and many currencies have experienced inflation in the past, and there are speculations that the U.S dollar will suffer even more in the time to come.
But from history, gold has been an equalizer during times of inflation. It is usually a reciprocal effect on gold. When currencies are losing their purchasing power due to inflation, gold prices begin to climb. So if you are looking for a way to preserve your wealth from the thong of inflation, investing in gold might be your best bet.
#2: Serves as long term storage of value
Gold has performed excellently over time, and because of that, it has proved to be a reliable store of value – even for a long time. If you have been wondering how to store values for your children and grandchildren or looking for a way to store up for your retirement, investing in gold bars may come in handy.
#3: Has high liquidity
Yes, gold has grown in popularity over the years – from centuries ago. Because of this, there are lots of platforms out there where you can easily buy or sell gold. That way, whether you are looking to convert your assets to gold or from gold to cash, you won’t have to struggle at all.
The high liquidity nature of gold makes it very useful in times of emergency as you can easily convert it to money and use it when you don’t have enough funds to handle the situation.
#4: Perfect for portfolio diversification
This is probably the biggest benefit of investing in gold. It comes as a perfect way to diversify your portfolio. Due to its low volatility, you can invest in it to balance any form of volatility in your investment portfolio. That way, you will be fortifying yourself against any form of “wealth wipeout” that often happens in situations like a stock market crash or severe economic depression.
#5: Investing in gold is very simple
Yes, there is no technicality here, unlike some other investments like stocks and cryptocurrency. Even as a novice, you have lots of gold dealers around you who will be happy to sell or buy your gold. Investing is easy, and when it comes to storing your gold, a simple deposit box at your bank will do without any fear.
You won’t have to worry about losing your investment or getting scammed with it.
Some Cons of Investing In Gold
Like with every other form of investment, there are also some risks that come with investing in gold. Some of these challenges include:
#1: You need a lot of capital
Gold is a high-value asset, and to invest in it, you will also need a lot of capital. And if you invest such an amount of money on other assets, you will likely get more returns. So if you are investing in gold for the gain, you might need to consider other forms of investments like stock, bonds, and mutual funds because there isn’t much difference between them and gold considering the capital involved.
#2: Storage problems
Storing physical gold is one of the major challenges gold investors face. Whether you are keeping it away in a safe place in your home or in the bank, you cannot be guaranteed it’s 100% theft-free. On the other hand, some investors use pooled accounts to help them store their gold, leaving the gold to be saved with the company.
The only problem with that is that if the company eventually belly up, you might lose all your gold to the creditors of the company.
#3: It is not a passive income asset
Unlike other assets, you shouldn’t expect too much yield or dividends on gold. You only get your return on investment when you sell it. On the other hand, the money you pay for insurance and storage of your gold can sometimes eat up the gain you make from selling it.
#4: Huge taxes
Investing in gold attracts a lot of premiums and taxes. When you buy the precious metal, you will be required to pay a premium, which is usually added to the purchase price. Also, you will be required to pay some taxes if you are buying gold stocks. That means when it’s time for you to sell your gold investment, the premiums and taxes will be eating into your profit.
Final Note
Gold is a good form of investment, especially as it preserves you and your wealth in times of inflation and natural disasters. Gold is more stable in price and has high liquidity. This means you can easily sell your gold any time you like.
In this post, we have shown different options available to you when looking to invest in gold as well as the pros and cons involved in doing so. We hope this helps you make an informed decision about investing in gold.
