Monday, February 02, 2015

Should investors diversify with gold?

Putting all your eggs in one basket is a very dangerous thing to do. This is why it’s important to diversify by spreading your assets in all kinds of investments.

Having a well-diversified portfolio not only secures your assets when markets go sour but it also shows your future partners the kind of intellect you have when it comes to investing. Diversification doesn't necessarily mean investing in different kinds of stocks.

It means investing in different kinds of investments such as mutual funds, bonds, commodities, etc. Gold is a favorite diversification asset by investors particularly because it doesn't move along with other securities.

When the U.S. dollar is down, gold is almost always up and vice versa. When the market is bad, you’ll see investors running for gold. This is exactly what happened in the 2008 financial crisis. Right after the most recent economic slump, gold prices steadily increased and peaked at around $1,800 in 2011. Gold sustained its high prices when the The Fed’s quantitative easing was still active, since high government spending also affects a country’s economy seriously. Anything that can put fear into the hearts of investors keeps gold prices high.

Talks of Europe’s Quantitative Easing are currently lending support to gold’s price increase. If you decide to get exposure from gold, there are several ways to do so. First is by buying the physical metal from brokers. This is the most direct and effective way to own gold but is only available for those who have serious amounts of cash.

Apart from paying gold’s actual price, investors would need to shoulder fees like storage costs and taxes. Speaking of taxes, there are different rates in each country. In France, for example, tax rates are currently deterring gold sales. BullionVault reports that since January 2014, the tax on sales of gold investments in the country rose from 8% to 10.5%. So if you’re living in a country with high tax rates on gold purchases, you may want to buy gold from brokers on-line. If physical gold is expensive for you, you may invest in gold-backed ETFs that are sold 1/10 of the metal’s spot price.
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