When Does It Make Sense to Invest in Gold Bullion?

Exploring new investment opportunities can help you adjust your portfolio to changing economic conditions and meet your evolving personal goals. There is no one-size-fits-all type of portfolio. What works when you’re younger may not fit as your wealth grows or your goals shift.

#1 Your Portfolio Needs Diversification

No matter what you’re investing in, it doesn’t make sense to own too much of it. A portfolio entirely dedicated to stocks is highly vulnerable to market volatility, while one invested only in bonds will be exposed to high inflation.

One popular position is that a portfolio can benefit from having around 10% invested in gold and silver. What that diversification does is spread out both risks and growth.

If you find your portfolio is over-committed to one type of asset and your risk tolerance changes, it may make sense to convert some of your gains into gold holdings.

By the same token, after a market crash, gold may represent a higher percentage of your portfolio than you intended. When you buy and sell gold to balance your portfolio, you can both mitigate losses and make sure you don’t lose out on bold opportunities.

#2 Inflation Is High

High inflation means that the dollar is losing value compared to the things you can buy with it. As inflation creeps up, it makes less and less sense to keep money in cash.

While there will always be a role for an emergency savings fund, if you have substantial cash reserves, they are currently giving you higher and higher negative returns. Any money that doesn’t generate interest loses ground to inflation rapidly.

It may make sense to convert some of those cash savings into gold bullion to prevent losing value to inflation.

#3 You’re Worried About a Downturn

If too much of your money is invested in stocks, a stock market plunge can dramatically impact your savings. When you have time to wait, you’re more resilient to risks. Markets typically recover, but you can’t predict how long the recovery will take. The less time you have before you need to make a withdrawal, the riskier the stock market is.

For example, the March 2020 stock market crash saw markets like the Dow Jones lose 20% of their value. However, markets recuperated those losses relatively quickly, to the surprise of many who expected a major recession in 2020.

But the 2008 financial crisis was another story. The S&P 500 lost nearly half of its value, and it took two years to recover. If you needed to make a withdrawal from your investment fund in those two years, you would have noticed a steep loss.

As you come closer to your investment goal, it makes sense to convert high-risk assets like stocks into something lower risk, such as bonds or income assets.

Gold bullion can also help you move funds out of those assets for wealth preservation. It can even be used to prepare wealth for an inheritance because it keeps its value relatively well and becomes more predictable.

Christophe Rude
Christophe Rude
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