Gold is one of the most ancient and valuable metals. In ancient civilizations, gold was considered to be a symbolic form of currency. Even today, when other forms of currency fail, gold can always be used as its value never truly depreciates.
In this article, we have discussed how much gold should be there in your portfolio along with discussing its pros and cons.
How Gold Holds It Value?
It might not be visible, but the value of gold is ultimately a social construction. People see it as valuable and agree to it along with storing it in the form of ornaments, jewelry, and other artifacts.
Even after that, some people think that gold holds no intrinsic value in the present times as compared to the monetary qualities of the past. In this advanced economic environment, paper currency is valuable, which indeed is true. However, gold is an asset with unique qualities that makes it a great choice for investors.
Certainly, many investors keep gold in their portfolios. The main reason why they prefer gold is because of its history. It has been valuable for thousands of years, and that is enough for them to rush and buy when the gold is doing well in the market. However, the price of gold increases and decreases like other assets based on how the markets are doing which is another factor that influences the value of gold.
Some people believe it to be a good idea to keep gold in the portfolio whereas some don’t. Let’s discuss the pros of keeping gold in the portfolio along with knowing how much of it should be there.
How Much Gold Should Be In Your Portfolio?
Generally, a portfolio is a collection of financial savings and investments in the form of stock, commodities, cash, cash equivalents, closed-end funds, and exchange-traded funds. Commonly, people believe a portfolio must comprise cash, bonds, and stocks. However, in some cases, people gather a wide range of assets such as real estate, gold, art, etc.
For some, gold might have a good place because a portfolio must be structured in a way that will help you reach your long-term goals. As the price of gold increases in the market, it becomes more and more valuable. Although, experts suggest that you should know how much gold to include in the portfolio.
The majority of people follow one rule: gold must not be more than 5 to 10 percent of the portfolio. This not only depends on the price but also depends on the risk tolerance of bigger or smaller shares of gold. Those who invest in gold trading options might know the difference between profit and loss and risk tolerance.
More Reasons To Include Gold In Your Portfolio
It’s clear that gold holds great value in the portfolio as an important investment. Here are some more reasons why it’s a good idea to include gold in the portfolio.
Protection Against Inflation
One of the biggest and strongest reasons why you should include gold in your portfolio is to protect and hedge against inflation. As gold is an important value storage vehicle, it has greatly managed to do well with time and people know it too. It is considered that the value of a dollar can erode through inflation with time, however, gold can help you hedge against your loss of value even though it inflates from time to time.
Also, mostly gold prices move opposite the price of a dollar so when it weakens and gradually destroys, gold strengthens. Apart from that, even when gold isn’t increasing at a good or rapid rate, it still holds value and is considered to be a better way to stay headstrong during or after inflation.
Diversity In Your Portfolio
As mentioned above, most people think of bonds, stocks, and cash to be enough in their portfolio. However, if we think clearly they don’t really add diversity to our portfolio and leave some space for other assets. Also, every asset has its own value in terms of long-term financial investment.
So, if you think that stocks or bonds aren’t enough and do not provide enough diversity, you can always choose to add some percent of gold to feel comfortable. Know that it will be of great advantage in inflation as gold not only moves opposite the value of a dollar but the stock market as well. This means when the stock market drops and decreases the overall rates of goods, gold still heads higher and is strengthful.
Moreover, gold not only provides diversity but also maintains balance in the portfolio among assets as each one of them is different and can partially offer protection from any uncertain and unfavorable market event.
Does Gold Really Help In The Portfolio?
Some people still believe that gold does not offer better protection or hedge against inflation and is not a good option for the portfolio. The reason is, they believe gold only has intrinsic uses nowadays such as used for ornaments or jewelry only.
Furthermore, if you are someone who is stockpiling stuff against any economic collapse, you might be in for some unexpected tragedy. In that case, people around you will be able to use gold. It is because you cannot always store or stockpile food.
On the other hand, some believe that if the U.S changes its gold standards, then people with gold and gold stores will benefit hugely. For that reason, keeping gold in the portfolio is certainly a good choice because in near future there could be a change in gold standards worldwide.
The only reason this hasn’t happened yet is that there is so much money circulating worldwide, both digitally and in paper currency that switching standards are impractical and unlikely. Apart from economic stability, the financial systems could collapse with such changes that are not feasible for all.
In short, gold is a pretty good and fine choice to add to the portfolio as long as you know how much will be manageable and beneficial to help you in the future.