Many investors earned a sizable fortune during the gold boom of the last decade, during which time gold prices rose from roughly $250 an ounce to more than $1700. However, financial advisors and analysts are citing a different reason or adding gold to your investment portfolio – risk management and protection from currency fluctuations. With the steadily declining value of the U.S. dollar and other fiat currencies, there is no way to know how much your money will be worth in the near future; unless of course you convert your paper money into something more reliable.
Dollar Declines, Gold Ascends
Throughout history gold has had a higher value and demand during times of economic uncertainty such as wartime or recession. The reasoning behind this is simple – when people aren’t sure about the value of their paper money, they exchange it for gold, and when more people begin buying gold, the value goes up accordingly. The bottom line is – if or when the dollar bottoms out, gold and other forms of natural wealth will come out on top. Is the value of the dollar declining? Does it look like it is going to continue to decline?
Mitigating Risk by Properly Incorporating Gold into a Portfolio
With knowledge of gold’s reliability and stability you would think that most investors would hold the majority of their assets in gold holdings. While this would be a good way to play it safe, it is not very practical in terms of investment flexibility. Instead, most advisors recommend devoting between 10% – 20% of your annual investment budget towards gold. This will ensure that you’re consistently securing a fraction of your assets, while leaving the rest available for investment in other more lucrative investing instruments. Gold may be one of the safest investments you can make right now, but it isn’t necessarily the most profitable, so it is best to leave capital available for other purposes.
Examining the Actions of Governments and Corporations
When you’re trying to make the smartest decisions as an investor it doesn’t hurt to monitor the investment activities of governments and corporations. After all, these organizations are run by some of the wisest investors on earth. A quick Google news search reveals that India and China have been placing an increased focused towards obtaining and storing more gold. This says a lot when you consider that these two nations have done a great job of keeping their economies thriving during the recent global financial crisis.