When it comes to investing money, some people are willing to take on more risk than others. For example, investors who are older and closer to retirement may want to safeguard their money by moving toward more conservative, reliable assets.
If your investing strategy focuses on minimizing risk, gold can be a smart way to protect your investment dollars while still enjoying solid returns. In this article, we’ll explore why risk-averse investors would be well-served by adding gold to their portfolios.
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How gold helps risk-averse investors
Here are four reasons gold can be an ideal asset for investors reluctant to take on too much risk.
It generates reliable returns
Gold is a stable investment that isn’t subject to the same wild price fluctuations as others, such as stocks. While these types of investments can generate significant returns, they can also suffer significant losses.
By contrast, gold retains its value over time, even during economic turmoil. In fact, it tends to perform especially well in market downturns. This makes it a great long-term investment and a safe place to put your investing dollars.
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It’s a store of value
Gold is a tangible asset that’s been considered valuable for centuries. Unlike fiat currency, it doesn’t require the backing of any government or institution. And unlike stocks, it doesn’t rely on any promises of performance. This makes it a good way to protect your portfolio from market forces that can lower the value of money held in other assets.
“Gold has been a store of value for nearly 5,000 years and has been used by mankind as a medium of exchange,” Chris Battifarano, chief investment officer for FineMark National Bank & Trust, recently told CBS News. “There is no obvious reason for this to change.”
It’s an inflation hedge
Gold is a demonstrated hedge against inflation. Its value tends to hold steady — if not increase — when the purchasing power of paper currency declines. For example, during the inflationary period of the 1970s, gold prices rose from $35 per share to an astonishing $850 per share, according to NASDAQ data.
While results may not always be this staggering, gold’s inverse relationship with the dollar has proven to help investors weather the harmful effects of inflation.
It diversifies your portfolio
Diversification is an essential aspect of any investor’s strategy. By diversifying your portfolio, you can spread out your risk and lessen the impact of any one investment on your overall portfolio.
Gold can help reduce risk and protect your portfolio from losses because when the value of assets like stocks and bonds falls, the value of gold often increases. For example, GoldSilver reports that gold prices rose in six of the eight largest stock market crashes of the last 40 years. Consider the 2007 to 2009 recession, when the S&P 500 went down by 56.8%, but gold prices rose by 25.5%.
The bottom line
Gold is a great investment option for risk-averse investors. It’s a stable asset that holds its value well, especially in times of economic uncertainty and outright crisis. It also serves as a hedge against inflation and can provide diversification benefits to your portfolio in any economy. Allocating a portion of your portfolio to gold can help reduce risk and enhance returns over the long term.
Of course, as with any investment decision, your risk aversion is only one part of the equation. it’s important to carefully research your gold investing options and consider your overall investment goals, timeframe and budget to incorporate gold into your portfolio in a way that works best for you.