3 Things To Consider Before You Invest In Gold

Most of us are eager to prevent stagnation when it comes to our finances, and look to investment as an opportunity to grow our wealth. Gold is a popular commodity to invest in as it’s generally considered to be low-risk. Unlike paper money, there’s only a finite amount of gold in the world – 208,874 tonnes of which has been mined – which helps it to retain its value over time.

Despite gold generally being considered a safe bet, no investment is entirely risk-free, and gold won’t be the right option for everyone. To figure out if it’s likely to benefit you, here are three things to consider before you make the decision to invest in gold.

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Your investment goals

While the decision to invest is a sensible one, it’ll only prove lucrative if you know where to put your money in order to achieve your financial goals. This means identifying exactly what you want to get out of your investment, such as your reasons for investing, and how much of a profit you hope to make in the long-term.

People tend to invest in gold to keep their finances stable and diversify their portfolio, rather than to make a huge profit. So, if your core investment goal is to protect yourself against rising costs of inflation, this may be a worthwhile investment for you. Although, in 2020, the average return on gold investment was 24.6% – the second-highest return amongst other investment assets that year – so while it shouldn’t be your sole reason for investing, financial gain is possible.

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Associated Risks With Investing In Gold

Few rewards come without risk, but you don’t want to put yourself in a position where you might lose more money than you can afford to. Despite gold’s ability to retain its purchasing power, it’s not entirely immune to economic or political influences. Plus, there’s the risk of investing in counterfeit gold, and the insurance and storage costs that come with buying physical gold bullion.

Just how risky your gold investment will be will depend on the strategy that you use – while physical gold comes with all those upfront costs, it does allow you to be the sole proprietor of a tangible asset. In contrast, if you choose to invest in stocks, you’re largely reliant on a company’s performance, which will inevitably pose more of a risk.

Potential Strategies With Investing In Gold

There are different ways that you can choose to invest in gold, and the right one for you will depend on what you want to get out of your investment. Many investors choose to purchase physical bullion bars and coins for that peace of mind that comes with owning a tangible asset. This is a great strategy if you’re simply looking to preserve your wealth and protect your finances.

As we know, you can also invest in gold without physically owning it. For example, you can invest in an exchange traded commodity (ETC) – a type of collective investment that functions much like stocks, whereby the price of the market (and your potential return) fluctuates. While this comes with greater risk, it’s a better investment option for those looking to luck out and make a profit.

No matter the strategy you choose, it’s important that you don’t put all your eggs in one basket. Experts recommend that you devote a maximum of 10% of your investment portfolio to gold in order to mitigate risk.

Conclusion With Investing In Gold

Gold is a commodity that is known to retain its value and hedge against inflation, making it a smart investment if you want a greater sense of financial security. It may not be the best option if you’re looking to make a significant profit, but it’s a solid investment that can help to stabilise your portfolio. Devote 10% of your portfolio to gold, and use a variety of different strategies to get the most out of your investment.

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