Many precious metals investors take offense when others suggest that gold is not a “real investment.” After all, gold tends to appreciate over time, is never “worth zero” (not many things you can say that about), and can be bought, sold, and traded on multiple exchanges for multiple other assets.
That certainly looks a lot like an investment vehicle from here!
For investors who do not fully appreciate how gold can work as an effective, productive investment, usually, the issue is that they look at the yellow metal in an oversimplified way.
They tend to think that investors use gold mainly to hedge against inflation or disaster, similar to the ways in which investors use real estate for these purposes.
So why is real estate a commonly accepted, wildly popular asset by the same investors who do not fully embrace gold as a true investment vehicle?
Well, the answer is simple: gold just brings too much to the table.
Now, that may sound a little “flip” to you, but it is the bare truth. Gold functions both as an investment vehicle and, as one analyst aptly described it recently, “life insurance” for your portfolio.
Investment strategist for Mauldin Economics Jared Dillian describes gold as something better than a hedge on your mortgage or an asset to “buy and hold” for appreciation over time.
“Gold is a hedge on your life,” he explained. He went on to describe gold as insurance for your investment portfolio, in large part because “precious metals tend to improve the risk characteristics of your portfolio” while also adding significant value at the same time.
In a time when global events are threatening a number of “conventional” asset classes like stocks, bonds, treasuries, and mutual funds, having gold and precious metals in your portfolio is a wise move simply because turmoil of any type – be it economic, political, or even environmental – tends to drive the price of gold up.
As a safe-haven investment, gold values usually rise when other investments even look threatened. Further, even when things go well, gold is always in demand and, thanks to the recent behavior of many central banks that have been buying up as much gold as possible, it is likely to remain in high demand and short supply.
As Dillian puts it, “I spend most of my time thinking about how things can go wrong rather than how things can go right…[but] if I see Mel Gibson running around outside with a chainsaw, I’ll probably be financially free.”
While that is definitely an extreme point of view, any investor holding a solid 10-35% of their portfolio in gold and precious metals will certainly be able to rest easy knowing that their investments are likely gaining value and, if worst comes to worst, the portfolio, at least, will remain sound.