Gold has historically been a salve for jittery investors, providing a counterpoint to traditional securities, such as stocks that offer higher returns but more volatility.
“Gold prices often benefit from geopolitical tensions and the perceptions of heightened economic and financial market risk, with investors using it as a hedge against a low-probability, high impact worst-case scenario,” says Greg McBride, CFA, Bankrate chief financial analyst.
What makes gold a good hedge? Unlike government-issued currency that can be devalued, gold is a commodity with an inherently limited supply. Plus, because demand for gold spans the globe, its value is less susceptible to adverse events in any single region.
- There are a couple ways for individuals to invest in gold.
- You can buy gold bullion directly.
- You can use a gold IRA to hold the physical asset in your portfolio while still getting a tax break.
- You can invest indirectly via a gold exchange-traded fund that invests in gold as an underlying asset.
Even though gold is an age-old portfolio play, owning precious metals is different than owning company stock. “With no dividends or other cash flows, investors are dependent solely on price appreciation for a rate of return on gold as an investment,” McBride says. Source
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