You may have heard that gold is not just a good savings asset, but also a crucial asset integral to owning a diversified investment portfolio.
If you’re looking to find out what gold can do for you as an investor, Robin Lee, shares key insights from his time as the former CFO of the World Gold Council.
Gold’s market performance
95% of the time, you’ll find markets operating under normal conditions. During these times of market stability, gold tends to display an asymmetric behaviour in relation to most investment asset classes. This means that when market prices are going up, the gold spot price doesn’t necessarily go up or down. Gold performs almost independently from the markets. Even when market prices go down, gold will continue to perform with little to no correlation to the markets.
What this means for the smart investor
When markets are performing favourably for you as an investor, you should focus on making the best returns possible with other asset classes. During these times, gold doesn’t necessarily have a role to play in terms of maximising profits.
But does this mean that gold has no role to play at all?
Gold is insurance for your assets
In the 5% of the time that markets do happen to operate under extreme stress, gold has proven a negative correlation to all asset classes. In other words, when everything is going down, the gold spot price tends to go up.
This is fundamentally important because it means that gold has a unique insurance-type quality for any investor looking to safeguard his/her investments.
You should hold 5-10% of your investment portfolio in gold
Given professional and well-advised investment choices, you should see sufficient returns under normal market conditions.
But the truth is that no one can truly predict when markets will make a bad turn.
This is why diverse investors hold a little bit of gold – about 5-10% in his investment portfolio in terms of allocation. When your investments start to make a turn for the worst, gold prices will go up and enable you to liquidate your gold for profit in order to cover any assets that are in negative territory.
Gold is much like purchasing insurance when you buy a house or car. Nobody can predict when tragedy will strike. You pay for insurance every year in hopes of safeguarding your property against damages, burglary and natural disasters. You can only do your best to prevent it from happening and to mitigate and cover your losses when it does happen.
Similar to insurance, a lot of smart investors see gold as a kind of safeguard for their investment portfolio. Many do really well without necessarily needing gold, but in the rare times financial crises do occur, you’ll be grateful you held enough gold to mitigate losses that you might have otherwise experienced.
Don’t wait until something goes bad before you decide to diversify your investments with gold. Start saving with HelloGold today!
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