As gold prices rise, experts explain how to use it for long-term wealth

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• The value of gold is at a record high.
• Investors can use gold as a hedge against inflation and economic uncertainty.
• Diversifying with gold protects you from market downturns while helping you preserve your wealth.
• Buy bullion coins and gold bars online All US assets.

The price of gold rose to a record high in October and remained strong bull which has persisted into 2024.

“Gold was hitting record prices before the Fed started cutting rates,” said Philip Patrick, precious metals specialist at Birch gold group. He explains that high global demand from central banks and the general devaluation of the dollar since the pandemic have driven gold prices. “Interest rates have an effect,” he continued, “but I don’t think they are the main driver today.”

Gold has historically underperformed over the long term compared to market-related investments such as stocks and index funds. Although it is not as profitable as higher risk securities, experts say invest in gold is best used as a means of further portfolio diversification and as a hedge against inflation.

Consider adding gold to a diversified portfolio

Diversification aims to reduce the portfolio risk and volatility by investing in different asset classes. This strategy helps protect your portfolio from significant losses due to the underperformance of a single investment. A more diverse portfolio is better equipped to weather market fluctuations.

A general rule of thumb for diversifying your precious metals portfolio is to invest between 5% and 10% of your portfolio in physical gold. Although it varies from person to person, says Drew Martino, wealth manager at Smart advisorshe generally does not recommend investing more than 10% of a portfolio in alternative investments, including gold.

“I think it’s still a good time for average investors to consider buying gold if they already have an established portfolio of stocks and bonds,” Martino said. However, he continued: “I wouldn’t recommend investing solely in gold if you don’t already own any other assets.”

Other options to consider are gold ETFs and mutual funds. Compared to owning physical metal, gold funds offer more liquidity. However, you do not actually own the gold. Moreover, you are still at risk because the value of your gold fund largely depends on the company that manages the fund.

Sustainable investing focuses on building a solid foundation with proven assets that can withstand different market conditions. When diversifying your portfolio with gold, “do your due diligence, do your research and get the information so you can go into it as best you can,” Patrick said. “That will put you in the best position.”

You can also use gold as an inflation hedge

“When we face challenges such as inflation, currency devaluation or a looming recession, there is often a greater demand for safe havens. raw materials designed to preserve purchasing power,” Patrick said.

Physical gold is one of these ‘safe havens’. As inflation erodes the purchasing power of the dollar, causing prices to rise, gold tends to appreciate, making it an attractive investment for those seeking protection against market downturns.

“Gold can still be volatile, but it has intrinsic value and purchasing power,” says Martino. “It is called a safe investment because it tends to do better when stock prices fall or during periods of inflation, but all investments involve some risk.”

However, gold is not leverage. You do not generate income from dividends or interest. Price appreciation is the only way you can build wealth with physical gold.

Chuck Etzweiler, CFP and senior vice president of research at Nepsiswarned against buying gold based on the idea that it is a viable strategy for building wealth. He recommends viewing gold as a currency hedge and not as an investment strategy.

The golden bull run will not last forever

Gold appreciates over time, making it an attractive investment for those looking to reduce the impact of violent market fluctuations. In the long term, gold prices tend to rise due to continued global demand. However, the purchasing power of the US dollar is likely to recover and eventually surpass the price of gold as the economy strengthens.

The S&P500For example, since its inception in the 1950s, the economy has historically averaged an annual return of about 10%. In 2023, the index delivered an impressive annual return of 26.3%. In contrast, gold’s 10-year annualized return is 4.57%, and in 2023 the annualized return was 13.1%.

“The biggest risk of investing in gold is the opportunity cost,” says Patrick. ‘Gold can underperform when the economy is strong compared to higher-yielding investments supplies and market funds. While gold is a popular investment, investors, especially those in the accumulation phase, should avoid over-investing in any asset, including gold.”