Is Gold Worth It? How Much Bullion Belongs in Your Portfolio
Investing in bullion can be a valuable addition to your portfolio. Depending on the size of your portfolio and your investment strategy, it’s an asset that can provide several benefits that protect your savings. Bullion offers several unique qualities that can benefit your portfolio as a whole, including risk mitigation, diversification, and a hedge against inflation.
Bullion can provide a safe haven from the storm when markets become volatile, or there is an economic downturn. When you consider the market risks that exist today, bullion can be a smart asset to include in your portfolio, but it still comes with an important question: how much bullion belongs there?
Diversification: Bullion vs. Stocks
One of the main reasons investors choose bullion is to diversify their portfolio and make sure at least some of their savings is held off of the stock market.
Gold and silver bullion are regularly used as alternatives to the stock market. Prices tend to rise during downturns or periods of global uncertainty. Gold prices rose steadily in the wake of the 2008 financial crisis, and concerns over both the pandemic and the war in Ukraine also pushed prices higher.
Although the stock market does come with risks, stocks, mutual funds, and ETFs will always play a significant role in most portfolios. They provide long-term growth and generate income through dividends. Most investors will hold the majority of their savings in stocks until they need to reduce their risk exposure, although bullion can still provide a valuable countermeasure.
Inflation: Bullion vs. Cash
If you’re looking for an investment that’s isolated from stock market risks and highly liquid, why not just keep your money in cash?
The biggest issue with keeping your savings in cash is inflation, and this is where bullion can provide some reassurance.
The inflation rate is the rate at which cash becomes less valuable over time. Unless your savings generate interest at a higher rate than inflation, you’re losing purchasing power.
Gold and silver are widely used as hedges against inflation or depreciation of the dollar. Precious metals have historically maintained their value over long periods of time despite inflation. They also show resilience in the face of stock market crashes and downturns. In other words, precious metals may not promise higher growth than stocks, but they offer safety when other parts of the market are down.
Liquidity: How Difficult Is Selling Bullion?
One of the concerns investors have about buying physical bullion is liquidity. There are measures in place that usually allow investors to sell stocks at a moment’s notice when markets are open, while mutual funds can usually be bought or sold once markets close for the day.
Bullion may not be as liquid as paper assets, but that’s not necessarily cause for concern. There are many local bullion dealers who can make your gold and silver transactions fast, secure, and reliable. Bullion dealers are businesses that handle investment-grade gold and update the prices that they pay according to markets on a daily basis. They make it easy to make investment transactions with bullion.
How Much Bullion Should You Own?
As a rule of thumb, most investors who are bullish on gold and silver suggest committing a range of 5 to 15% of your portfolio into bullion. This is enough to add some considerable diversification to your portfolio and expose yourself to all of the benefits bullion provides in a significant measure. It will make your portfolio more robust and ready for anything.
