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What You Need To Know If Considering Investing in Gold.
In 1997, Congress passed the Taxpayer Relief Act which allowed investors to put away gold and other metals into a self-directed IRA. They were responding to investors who wanted to diversify their retirement portfolio from paper assets like cash, stocks, and bonds to add some tangible assets.
Edmund Moy, who is the leading Strategist for The Fortress Gold Group and was also the Director of the US Mint between 2006-2011, stated the following an article he wrote in September 2014: (click here for original source)
When it comes to building a diversified investment portfolio, investing in alternatives from the normal investments, needs to be considered. The main reason being that diversification helps balance out the variances in values of other types of investment commodities. Sometimes an investor may be heavily invested in a particular type of investment such as stocks or ETF’s, but with a diversified portfolio, they may well have stocks from various sectors from the retail sector to the tech sector and so on.
When one of these sectors, such as the oil sector, is going through a bad patch, as it is at the time of writing this, the chances are good that sectors such as retail or tech stock may be doing quite well. This not only balances out losses from the oil sector, but it can actually help to increase the value of a portfolio significantly over time.
Listen to Billionaire Investor Kevin O'Leary explain why he diversify's his portfolio with gold investment
Investors Want More Diversification
True effective diversification is not just diversifying stocks and ETF's, it is much more than that. More and more investors are looking to broaden their horizons by investing in things like REIT's, corporate bonds, gold, and silver, as well as stocks and ETF's.
BullionVault, who are a leading peer-to-peer gold-and-silver-bullion exchange, based in London, recently produced their annual report and analysis on how varying assets have performed over the last 40 years (1976-2015) in both the UK and the USA. (see report here)
As you can see from the facts below, although not the number one performing asset, gold has beaten other key assets in its returns over the past 40 years and has this century outperformed corporate bonds by a considerable margin.
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What Are The Pros & Cons of Gold Investment?
What are the pros to investing in gold?
Gold has had a remarkable performance during times of inflation and also deflation. Inflation is basically a period when the economy of a nation is struggling and the cost of living is high. During these times, gold prices tend to increase and that’s why it is often regarded as a ‘hedge against inflation’. Deflation, on the other hand, is when the economy is also struggling and business activity is quite slow. During deflation, it has been seen to perform well too.
What are the Cons to investing in gold?
While we do think that gold is a good investment, there are downsides to investing in it, just like there are downsides to investing in anything. Therefore you really must consider your reasons as to why you want to invest in it or any other of the precious metals, before you start out.
What we mean by that is, if you are looking to invest for the sole purpose of generating cash on a regular or short-term basis, gold is not the investment type you want. Precious metals don't pay out a dividend, therefore if that is what you need to consider stocks.
OK, we all know that you make your money when what you have invested in increases in value. While Gold has increased considerably in value over the past 20 years, over a limited time frame we see the value of gold bounce in both directions. We are not saying you can't make money short term, if that is what you want to do, you are going to have to be checking its price almost like a Hawk on a day to day basis. But if you take the view that investing in it is for the long-term and it is for diversification, then you can buy it and leave it alone without stressing as to whether it's going to make you any money tomorrow.
What Are The Options For Investing In Gold?
There are various ways in which you can invest in gold. You can do so through ETF's, closed-end funds, and only stocks such as mining companies. But we want to talk about two particular options for your consideration: Buying physical gold outright and holding it in a vault/depository outside the banking system and secondly investing it into a gold IRA rollover.
We cover both options in detail, explaining the benefits and options available, here on our designated gold companies page.