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Is Gold A Good Fit For Your Portfolio
Is Gold Right for Your Portfolio?
By Larry Lane for www.InvestorZoo.com
You've heard the gloom and doom news about the US economy.You've seen or heard advertisements on the TV and radio pitching gold as a hedge incase the world comes to an end. With gold near all time highs, you might be questioning if gold is a good fit in your portfolio. Gold is considered an inflation hedge and normally outperforms the stock market during stretches of uncertainty. Below are some historical returns:
Gold vs S & P 500
In 1980, the price of gold started at $524 per ounce. Thirty years later, gold is now trading at about $1100. The S & P 500 on the other hand was trading at 107.94. At time of writing, the S&P 500 now trades at 1135. This is not to say that there have not been periods of time where gold has outperformed stocks. Gold outperformed stock in the late 70's and early 80s as well as the last decade. You also might be concerned about the US government's trillion dollar deficits and the possibility of runaway inflation.
Like most investments, there are many ways to participate in the gold market.
Gold Coins
The most popular form of gold ownership is through the purchase of gold coins. You can purchase gold coins directly from the US government, there is no need purchase gold coins through broker or middleman. The US mint website is www.usmint.gov. Expect to pay a premium over the cost of the price of an ounce of gold when purchasing collectible coins.If you decide to purchase physical gold, you need a way to store it. The most popular way to store gold would be a through a safety deposit box at your local bank. Expect to pay about $20 per month. This expense must be taken into account when purchasing your investment. If you incur a storage fee, expect to add at least $250 in expenses per year to store your purchase. This can put a considerable damper on your investment.
Gold ownership through Stocks
Much like other sectors, there are many ways to invest in gold stocks. These stocks can fall into the small, medium and large cap arena. There are companies that specialize in domestic mining as well as internationally. Companies may hedge their mining operations through the futures market. This may affect net profits.
Gold Mutual Funds
If you are interested in purchasing gold stocks but don't have the time or knowledge to determine which company is worthwhile, a mutual fund might be a good alternative. A typical mutual fund might have 20 or more gold stocks in their portfolio. While you are spreading your risk among several companies, your overall investment is still tied to closely to the price of gold and the economy.
Exchange Traded Funds (ETFs)
Exchange traded funds are also available. State Street's streetTRACKS Gold Shares (GLD) and the iShares Comex Gold Trust (IAU) hold physical gold. Van Eck's Market Vectors Gold Miners ETF (GDX) owns stocks such as gold miners, while the newest fund, PowerShares DB Gold Fund (DGL) owns gold futures.
Risks
There are a number of risks involved in a commodity such as gold. Gold mining companies may have operations in small emerging nations and may be subjected to a political uprising or civil unrest. Market Vectors gold miners ETF (GDX) faces potential issues associated non U.S. investments. As an investor in gold, you face the potential of a government or hedge fund dumping large quantities of gold to raise capital. Gold tends to outperform in economic conditions when there is a week US dollar. When the dollar strengthens, money generally flows out of gold and into more stable instruments such as US Treasury bonds.
Depending on your outlook of the economy, gold may or may not make sense in your portfolio. The general rule in portfolio management is to have no more than 5-10% of your money invested in metals.
Always consult your financial planner for their opinion.
Larry Lane is the editor for www.InvestorZoo.com, a social networking site dedicated to personal finance
The article above is information of a general nature and the information provided may not apply to your personal situation. Please consult your financial planner or licensed professional for investment advice.
About the Author
Larry Lane is the editor for www.InvestorZoo.com, a social networking site dedicated to personal finance.
Investorzoo brings you weekly deals on credit cards, high yield checking accounts as well as CD and money market yields. You'll also find over a directory of over 10,000 financial professionals in many categories in all 50 states.
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If you have any questions, please drop me an email at larry.lane@InvestorZoo.com or 425-591-9315..
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