Gold has long been viewed as a safeguard against economic instability due to its lack of correlation with many other assets. Its value typically rises when stock and bond markets falter, making gold an attractive option for investors seeking protection during times of turmoil.
Seeing as physical gold does not correlate to the bond or stock market, it can provide greater security and potentially healthier returns in difficult economic conditions. So how much gold should you purchase? The honest answer is it depends on your future goals and your current circumstances.
What Kind of Investor Are You?
Before you can know how much gold you should own, you have to first identify your goals and your level of risk tolerance. Here are some useful question you should answer before investing:
- How much do I know about investing?
- How stable is my financial situation?
- Am I saving for a big expense like a home, college tuition, or retirement?
- Do I want to buy gold to turn short-term profit, or do you want to buy it as a long-term investment? Maybe both?
- Do I see gold as a way I can mitigate risk in my portfolio?
- Is protecting my investment more important to me than achieving high returns?
Everyone’s answers to the questions will be different, and while they are not enough to dictate exactly what you should do with your gold investment, they can help you decide what your investment approach will be.
Gold Investment Approaches
The percentage of a traditional portfolio that gold should account for depends on your goals, risk tolerance, and investment strategy. Below we detail a general framework you can reference depending on if you want to be conservative, moderate, or aggressive in your gold investment. For advice that is more tailored to your situation, consult a financial advisor.
Conservative Approach
Investing in gold bullion often serves as an effective risk management tool for a diversified portfolio. For medium and long-term investments, investment advisors recommend a conservative 2-5% position in gold to hedge against market fluctuations caused by economic conditions such as inflation and recessions. Having around 5% of your portfolio invested in gold will stabilize and help protect it during times of financial crisis.
As a conservative investor, it is important to reestablish your portfolio’s default allocation as your assets appreciate and depreciate in value. For example, when the price of gold increases and your position grows beyond 5%, sell off your holdings and return your position to 5%; conversely as gold price declines, buy more to return your allocation to 5%.
Moderate Approach
A more moderate investment in gold would represent 5-10% of your investment portfolio, with the exact percentage climbing up towards 10% if you expect an economic downturn in the near future. Savvy investors who increased their gold holdings towards the beginning of the COVID-19 pandemic in 2020 have seen their move pay dividends, as inflation has skyrocketed since.
Aggressive Approach
An aggressive position in gold would be a 10-20% allocation. Aggressive positions like this should be reserved for situations where the economy is performing very poorly and you want to maximize your hedge against it. That said, do not put all your faith in one position; your investments should be spread across 12-20 assets to achieve maximum diversification benefits. Consider commodities like gold and silver, as well as other precious metals and commodity-linked ETFs.
The idea is that the more diversified you are, the less risk you are exposed to. This is especially important when you increase your gold holdings to take advantage of market conditions in the short-term. Adequately diversifying the rest of your portfolio will protect you in the event that your risk does not pan out as expected. As a general rule, you should always be cautious when allocating more than 10% of your money into a single asset.
Where to Buy Gold?
Now that you have a more clear idea of how much gold you should own, the next question is where to buy it? If you’re thinking of buying gold in Windsor, or anywhere else in Canada, look no further than CanAm Currency Exchange.
As a registered dealer with the Royal Canadian Mint, CanAm offers some of the best rates in the market. They offer an excellent selection of gold and silver coins and bars, perfect for diversifying your portfolio. And best of all, they make buying gold quick and easy. Book a consultation today to take your portfolio to the next level!
The idea is that the more diversified you are, the less risk you are exposed to. This is especially important when you increase your gold holdings to take advantage of market conditions in the short-term. Adequately diversifying the rest of your portfolio will protect you in the event that your risk does not pan out as expected. As a general rule, you should always be cautious when allocating more than 10% of your money into a single asset.
