Why gold is good for long-term investors

Why gold is good for long-term investors

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Gold can be appealing to investors focused on long-term goals like retirement.

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Gold has plenty of benefits for investors, especially during periods of economic uncertainty or recession

Gold is seen as a way to maintain value and as a hedge against inflation. In the short term, diversifying with gold can help you weather downturns in other markets, since it may hold its value against volatility. 

But many people invest for longer timeframes, in anticipation of life goals like retirement. Luckily, some of the same benefits can help you over time.

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Why gold is good for long-term investors

Here are a few reasons why long-term investors may want to choose to add gold to their portfolios:

Long-term value

Gold has long been seen as a safe investment since it holds its value over long periods of time. 

During periods of high inflation, for example, gold can be valuable. That’s because the price of gold tends to remain steady or go higher when the value of the U.S. dollar declines.

“During times of economic uncertainty or market volatility, investors may turn to gold as a safe-haven asset, further increasing demand and driving up the price,” says Baruch Silvermann, investor and CEO of The Smart Investor, a financial education website.

While these inflationary pressures don’t go on forever, you are likely to encounter multiple instances of economic uncertainty and recession as a long-term investor, during which you may benefit from having some gold in your portfolio.

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Diversification

One of the best ways long-term investors can protect themselves from ongoing swings in the market is by diversifying

Gold makes a great diversifier, since as an asset its price often has an inverse relationship to other assets. When the stock market is down, for example, gold prices tend to rise (or at least remain steady).

Generally, experts recommend no more than 5% to 10% of your portfolio be held in alternative assets like gold. However, as you invest long-term, you may rebalance the holdings of the assets you use to diversify depending on what’s happening in the economy more broadly. 

If you’re purchasing gold as part of a long-term investment, says Mark Struthers, CFA, CFP, founder of Sona Wealth Advisors, you may not want to stray too far from your original core allocation. Struthers recommends only about 3% to 5% of your portfolio be diversified with gold. So, he says, “If you normally have a 3% allocation to gold, maybe you go to 5% based on the macro environment — a tactical tilt.”

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What else to consider when investing in the long-term

Gold can make a good addition to your portfolio if you’re focused on the long-term, but consider it as a part of your overall portfolio rather than your primary strategy. Long-term investing typically requires a balance of risk and security so you can grow your portfolio over time.

Common assets like stocks and bonds (among other investment types) can be riskier and less stable than gold, but they may help you increase your portfolio’s value more in the long run. If you have a very long time until retirement, you may afford to take on more risk. But over time, making sure you rebalance your portfolio according to your risk tolerance and timeline can help you best meet your goals by the time you retire.

The bottom line

Long-term investors can benefit from an asset like gold not only because it’s a great way to diversify but it can also help you maintain your value over time as you endure periods of downturn and volatility. Just make sure you take your individual goals and risk tolerance into consideration before making any investment decision. If you’re not sure where to start, consider speaking with a professional who can help you understand your options and find the right balance for you.

Find out more about how you can benefit from investing in gold here.



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