I promised I would answer that question, so here goes:
No investment should be made without considering your overall portfolio, objectives, asset allocation, and how any new investmentfitsin the overall plan.
Id suggest you start with a more basic review of your portfolio and objectives before making this decision.
For those interested in a discussion on broader portfolio strategy, see my article on asset allocationHERE.
For now, Ill focus on gold (and, precious metals in general).
Absolutely, and Id urge it to be an intentionally targeted allocation withing your retirement investment portfolio.
Some would argueorwould be a better choice at the current price relationship to gold (if youre not familiar with these price relationships and ratios, I suggest you study them before purchasing any gold).
So, lets changeGoldtoPrecious Metals.
Here, then, are the basic arguments for and against Precious Metals.
I wont attempt to support or refute these arguments, as I believe each reader should form their own opinion.
Also, to keep this post to a manageable length, I wont get into the various means one could pursue toown precious metals.
Suffice it to say, you can either buy physical (e.g., coins), Electronically Traded Funds (ETFs), or equity/stock in companies that mine precious metals.
I will draw some basic conclusions at the close of the following summary:
Every portfolio should attempt to diversify exposure amongthat are notcorrelated(meaning, they move to different rhythms and should offer some protection of a price decline across your entire portfolio at the same time).
The following chart shows gold prices vs the S&P 500 over the last five years, and you can see they do tend to move independently of each other. (Some would argue the chart supports the position that equities are overvalued andare due for abounce, Ill let you draw your own conclusion):
If you believe the US Dollar is headed for decline, precious metals offer one means ofhedgingthis risk.
As a currency weakens, precious metals should increase.
Regarding inflation, there are some who argue that precious metals will rise in a period of high inflation, protecting.
It should be noted that there are some who dispute this claim.
Media has had fun highlightingPreppers, or those that believeTEOTWAWKI(The End Of The World As We Know It) is at hand.
True, precious metals could be a means of barter in the end times.
As a Christian, I do believe there will ultimately be a dramatic change to life on our humble little planet.
However, precious metals will not be your salvation if/when such an event does occur.
Warren Buffet (one of the greatest investors of all time) is strongly against precious metals as an investment, and one of his strongest arguments is that it doesnt provide an income (such as dividends or interest).
In the low-interest rate such as were facing now, this is a smaller factor since the money youd be investing in precious metals would have a loweropportunity cost(e.g., if you had it in a bank savings account it would earn a historically low-interest rate anyway).
Relative to equities (stocks), precious metals have historically been a poor investment choice over the long term.
Theres no intrinsic value in precious metal, and its worth could decline if folks reduce the amount of money they invest in this commodity.
Also, some would argue its potentially a poorbarteringitem in an economic collapse if folks decide true consumables (e.g., toilet paper) are worth more than a metal coin which doesnt cover true physical needs (e.g., food).
Every investor must make their own decision on precious metals.
Id recommend that if you do decide to invest, recognize the pricing at the moment is different than its been in the recent past.
Consider precious metals versus your other investment options, which are now trading at prices higher than historical averages.
Many argue that stocks/equities are overvalued and due for a correction, and bonds have risk if interest rates rise (bonds fall in value when interest rates rise).
Regardless of your view, precious metals should not make up a significant percentage of your portfolio.
When thinkingshould I invest in gold, it is my opinion that a 5-10% allocation is a reasonable allocation.
Personally, I invest in silver and gold (in all three forms: bullion, ETFs, and stocks of miners), and Ive recently added a bit to my position.
Ive determined various target price levels, and when precious metals fall below a target I add positions, taking the funds out of equities and/or bonds (rebalancing).
Our total allocation is ~5% of our portfolio, and Im considering increasing my position slightly based on the target price strategy (e.g., another move lower will increase the allocation).
10% will be my largest allocation to precious metals, and Ill only achieve that level if there is a 10% reduction in prices from current levels.
Similarly, if prices rise I will sell increments that I already own as certain price targets are realized.
Disclaimer:Richtopia is not an intermediary, broker/dealer, investment advisor, or exchange and does not provide services as such. The opinions about gold as an investment in this post are those of the author. Please conduct independent research when making investment decisions and do not rely on the opinions published on this page.
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