Investing in anything can seem random, and the stock market is no exception. In fact, one of the most unexpected things about investing isn’t even the market–it’s ourselves. There’s even a phrase for it: stock market psychology. When we invest in traditional stocks we not only have to balance our own emotions, but even try to predict how other people will react to the market.
All of the risks in the stock market are compounded by risks in other investing. Just take the steep climbs in real estate prices over the last ten years. Which leads us directly into the question, how can we diversify our portfolios? In a word: gold.
We’ll explore some of the popular investments in gold and why they make a great diversification strategy for anyone trying to protect their future.
Hedge Against Inflation
Investing for retirement is all about inflation. If we put $100K into an account, and it earns 3.1%, but inflation goes up 5.1%, we’ll actually come out with less spending power in our retirement. We all hear the terms flying around–market performance, subprime interest rates, hedge against inflation. But sometimes the real world effects of these phrases can get lost. With inflation, sadly, none of us are in the dark about how it’s affecting us in the real world.
Inflation is the increase of goods versus the purchasing power of the people buying those goods. For instance, if the price of gas goes up by a dollar, but the average wage of Americans goes up by two dollars, there’s no inflation. But if gas prices go up by only 50 cents, and wages don’t go up at all, there’s a real inflationary effect that can hurt millions.
Take that math and consider that prices have gone up significantly more than 50 cents a gallon for gas, and wages have stayed flat, and it’s easy to see how inflation is at a historic high, at over 7%.
Now, consider that gold prices have seen almost double their value, and you can start to see why gold is a hedge against inflation. The process is simple: as the prices of everything else go up, gold becomes more valuable. Dollars are worth a little less, gold is worth a lot more. So any investment based in dollars won’t buy the same amount of gas, bread, or anything else, while that same investment in gold will buy more of those things.
Precious Metals in Technology
One of the ways most people invest for retirement is traditional IRAs. These accounts buy an index of stocks–with our money combined with several hundreds of other people’s–and then we get the dividends later. But there’s simply no solid way to predict the different indices in the stock market. A recent snapshot of index performance since 2010 shows that it’s almost completely random, year to year. But one thing we’ve seen over the last twenty years, technology keeps performing.
Data collected from 2000 to 2020 shows that 7 of the top 10 performing S&P 500 stocks were technology related. And what’s one thing that binds all technology together? Resources, especially precious metals. Gold is used in almost every form of modern electronics device. And when gold is in short supply, investments in gold become more valuable. Another precious metal used especially in IRAs is palladium, which has seen a boom-time explosion in its use in technology.
The tide of electronics and technology likely won’t be turned any time soon, if ever. With the world’s increasing use of these devices, the raw materials used for their production will become more and more attractive as investments.
Diversifying within the Gold Market
The benefits of investing in Gold are self-explanatory for some people. They already know that this and other precious metals have intrinsic value–value that is based on the gold itself, nothing else. But those same people might not be aware that there are multiple ways to invest in gold.
One of the reasons to invest in gold, really, is this power of choice that every investor has. You can invest in a Gold IRA, Gold EFTs, Physical Gold, or even invest in the stocks of companies that are involved in the gold market. Mining companies, computer chip manufacturers, gold transport companies, really the options are limitless.
Of the more popular options, Gold IRAs are a great way to get started learning about the gold market. A good Gold IRA company can educate you about the history of the gold market, and the market trends to keep track of. Many of these companies can also assist you with the purchase and possession of physical precious metals.
Other options for diversifying your portfolio with gold include exchange traded funds (EFTs) and gold futures. I’ve recently written an article breaking those two options down in detail, or you can check out how EFTs compare to IRAs. In the main, EFTs and futures allow you to make a quicker profit, albeit with more risk.
No matter what route you take, your ability to diversify within the gold market is a major benefit for investing in the gold market in the first place. Few industries offer as many options for investing, which makes gold attractive for people from all walks of life, with all levels of income and investing flexibility.
Final Pros and Cons
Having discussed so many reasons for why people choose to diversify with gold, let’s run through a quick list of the pros and cons. This list isn’t comprehensive, but should give you an idea of whether exploring further with a trusted gold company is right for you.
Nearly every financial advisor will tell their client that diversifying a retirement portfolio is absolutely essential. What many people don’t find out about is how beneficial investing in precious metals can be, especially as part of an overall diversification strategy.
By taking one of many gold options under consideration, you can not only help protect yourself against inflation, but also secure your investments with the increasing demand of technology, and even branch out into EFTs, futures, or other gold related stock. Now may be the best time to contact a good Gold retirement company to find out what can work for your portfolio.