For this reason, investors prefer to add gold to their portfolio — to hedge against inflation. Most estimates assume that gold investments should only make up 5-10% of your portfolio and nothing more. This ensures that your portfolio has room for other investments, such as mutual funds, stocks, P2P loans, etc. Similarly, a report from the National Bureau of Economic Research at Duke University, Campbell Harvey and Claude Erb (former bond and commodities manager at mutual fund firm TCW Group), suggests that gold is a good inflation hedge over long periods of time, measured in decades.
If you think bonds and stocks don’t offer enough variety, you may feel more comfortable adding some gold. Although gold may have little practical use, investors perceive an intrinsic value in this precious metal. First, every private investor should own no more than 10 to 15 stocks, including high-yield stocks, growth stocks, speculative stocks, a healthy geographical stock, and gold. This 4% is a good starting point for determining your portfolio’s default allocation to gold.
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price of gold often moves in the opposite direction to the dollar. So if the greenback weakens, gold is likely to appreciate. The easiest way to add gold to a portfolio is with an ETF called SPDR Gold Shares, commonly known by the symbol GLD. It’s worth noting, however, that if your short-term outlook for the overall economy is very positive, you should keep your gold investment to a minimum, as it would be expected that the price of gold could subside as the global economy recovers and starts to grow faster. Some investors believe that gold isn’t just a hedge against inflation or a useful part of a diversified portfolio.
If you want to add some balance to your portfolio, gold can be a way to do so by diversifying your assets in a way that protects you in part from market events. However, I wouldn’t recommend more than 10%, even if you really like the fictitious security of gold. We don’t recommend effectively putting all your eggs in one basket, as physical gold is the best way to hedge your other investments. Admittedly, that may sound like a terrible idea, as gold hasn’t done anything spectacular in recent years.
Ultimately, gold can be a good addition to your portfolio, as long as you know why you’re taking it up, and it can help you achieve your long-term financial goals.
