Pros and cons of investing in gold

When facing highly inflated prices and market uncertainty, investors may consider buying gold. Depending on your financial goals and preferences, gold may be a good diversifier in your portfolio. But not everyone wins from buying gold, especially when the investment is made from panicking rather than critical analysis.

When that's the case, "Other investors and institutions may have already done the same thing, which generally results in higher prices," according to Gary Watts, VP, financial advisor at Wealth Enhancement Group. "The ideal time to build and allocate a model portfolio would be in less volatile and stressful times when emotions aren't controlling decision-making. Sailors outfit and provision their boats before the storm."

That said, gold can be a worthwhile investment to some investors. If you're thinking now is the right time for you to buy gold then start by requesting a free information kit to learn more about this unique opportunity. 

How to invest in gold

In some cases, investing in gold literally means buying gold coins or bars, though that's not necessarily the most liquid, secure or easiest way to invest.

"For the average person, owning a fund (i.e., an ETF or mutual fund) that invests in gold is probably the easiest way," Watts explained. "There are funds that invest in gold itself only, others that invest in a combination of metals, and others still that invest in mining operations and the like."

Choosing between these options can depend on your goals, risk tolerance and current portfolio composition. 

For example, some investors might prefer to stick to the stock market but want exposure to gold, and thus they could invest in equities of precious metals mining companies. These assets might also hold appeal by paying dividends.

Other investors might want to diversify their portfolios by buying a gold ETF, for example, that's backed by physical gold but doesn't require investors to actually store gold bars themselves. This type of gold purchase generally wouldn't provide dividends but the returns could come from an appreciation in value.

Learn more about gold investing by requesting a free information kit now or use the table below to explore some top gold investing options.

Pros of investing in gold

Under the right circumstances, buying gold can have several advantages.

• Potential hedge against inflation: As inflation increases prices, purchasing power decreases. So, if you have cash, you're effectively losing money. Gold, on the other hand, is often considered a hedge against inflation. As the value of the dollar goes down, value of gold may increase. Not everyone agrees, nor does gold always rise when inflation goes up, but it could still be an investment factor. 
• Potential hedge against difficult economic conditions: Buying gold can potentially help investors get through uncertain economic conditions, considering the price might rise during these periods. An analysis by the Federal Reserve Bank of Chicago compares gold prices to a University of Michigan study of consumer expectations. As the proportion of consumers with pessimistic expectations goes up, the price of gold is positively correlated. That doesn't mean gold will always go up when the economy looks shaky, but it could potentially help those who plan ahead.
• Diversifying your portfolio: Some investors buy gold or buy silver (or both) as a way to build a diverse portfolio. Rather than having all of your money tied up in one asset class, spreading it around to different types of investments could potentially help you better manage risk and return. "Gold — or other precious metals — in the right allocation, can make sense in a balanced portfolio, but of course allocation always depends on a number of other factors like time horizon, investor experience, tolerance to volatility, cash flow needs, etc.," said Watts. 

If these are some of the benefits you're looking for then get started investing in gold today.

Cons of investing in gold

While gold can help add balance and security for some investors, there are also risks to watch out for.

• Potential performance lag over time: While gold might outpace other assets during specific periods, it might not hold up as well to long-term price appreciation. If you're trying to save for retirement, for example, then putting too much money into gold could hold back long-term gains in other markets if gold lags stocks. 
• Investments based on fear: Another potential downside to gold is that there can be a tendency to turn to this asset when markets get shaky. That can cause investors to make decisions based on fear, rather than on what's best for their long-term success. "I've seen the gold question come up in every single market downturn since I started in this profession," Watts said. "Too often, retail investors or DIY-ers respond with emotional decisions and end up hurting themselves…Panic and hope are not strategies."
• Complexity: If you're not already familiar with gold and the precious metals asset class as a whole, then it can take time to get up to speed. Choosing this asset class over others such as traditional stocks and bonds isn't just a matter of picking which one you think will gain more. There are also considerations around risk, cash flow, taxes and more. So, adding this asset class can also add some complexity to your investment decisions that you should be prepared for.

The bottom line

Buying gold can make sense for some investors, but it's not a decision to make lightly. It has benefits for investors looking to diversify and protect their assets during periods of downturn, but it can also limit your earnings over time and perform differently than you might expect. Take time to consider your options, and if you do want to invest in gold, make sure you know how it best fits into your overall investment strategy. 

Learn more about your investment options below.