Financial focus: Think twice before joining the Gold Rush
In recent months, you may have heard a lot about investing in gold. But is gold the right choice for you? Actually, many factors are involved in this investment decision and you’ll want to consider these factors before you invest.
Of course, the lure of gold is undeniable. Throughout history, gold has been perceived as having great intrinsic value. And this year, as you may know, gold prices have hit record highs, at more than $1,200 an ounce, as people have sought shelter from the stormy financial markets.
But as an investment possibility, gold has some scratches to it. First of all, contrary to what you may believe, gold prices do not always go up; instead, they will fluctuate, sometimes greatly.
Furthermore, there are specific risks with the different ways of investing in gold. If you bought a gold futures contract (an obligation to buy gold at a predetermined future date and price), you could lose money if gold falls, because you’ll still be obligated to complete your contract at the higher, agreed-upon price. If you purchased gold in the form of coins, bullion or bars, you’d face storage, security, insurance and liquidity issues. You need to do a lot of research before investing in gold mining companies, because some of these companies may still be in the gold-exploring stage and there’s no guarantee their explorations will lead to profitable discoveries.
Also, even when its price is considerably lower than it is today, gold is still a fairly expensive investment compared to other choices. It can be costly to go into the gold futures market. And you’ll likely have to spend thousands of dollars if you want to buy a bar of gold or even a bunch of coins.
Given these drawbacks to investing in gold, what can you do to fight back against market volatility? One of the best ways is to diversify your holdings among a variety of investments suitable for your financial objectives. Market downturns often affect one type of asset class more than another, so if you can spread your dollars among a variety of asset classes, you can help blunt the effects of volatility. Keep in mind, though, that diversification, by itself, cannot guarantee a profit or protect against loss.
In coping with volatility, you’ll also help yourself by taking a long-term view of your investments performance. If you look at your investment statement for a given month, you might not like what you see. But holding your investments for the long term may help your portfolio better weather the ups and downs you’ll encounter in the investment world.
So try to avoid the allure of gold as a quick fix to whatever seems to be ailing the financial markets at a particular time. Other investments may be less glitzy and glamorous than gold, but they can have their own sparkle.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor Iain Marshall. Contact him at (530) 676-5402.