If you’re keen to find out how gold can help diversify your portfolio, you’ve come to the right place. Every investor and trader knows how important it is to implement a carefully planned strategy. While gold is a popular choice for diversifying investment portfolios, it’s important to understand why. Plus, there are different ways to put this into action.
Here’s what you need to know about diversifying your portfolio with gold.
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Why investing in gold is key for protection and diversification
Diversification is something almost every successful investor or trader strives for. It can protect you from the risk of volatile markets with multiple back-up markets that can help you balance everything out and keep your investments stable over time. If one market takes a turn for the worst, other more stable markets can help to offset these negative impacts.
You simply spread your investment capital across a range of asset classes and industries, so you don’t ‘putting all your eggs in one basket’. Reduced risk and an enhanced earning potential – it’s a match made in heaven.
So, why is this the case? Firstly, gold behaves a little differently to stocks and other assets. Firstly, gold has no connection with other assets. It doesn’t follow economic factors where a downturn in the economy simultaneously causes a downturn in share prices. In times of economic instability or global crises such as the pandemic, gold can create a cushion against potential losses. Many view gold as a hedge against inflation, as it’s historically held its value over time. Plus, its liquidity means it can be bought and sold in a range of ways, from gold bars to shares in gold mining companies.
How to make the best of investing in gold
If you’re keen to start investing in gold, there are several ways you can do this.
Firstly, you can buy gold directly through gold jewellery, bullion bars or coins. Bear in mind that the value of gold is dictated by its carats, where higher carat numbers have a higher proportion of gold.
Another option is to buy gold and commodity funds through funded trading using a reliable trading platform. This way you can use financial derivatives such as CFDs and other means of trading and investing in gold wherever you are. Choose funds that can give you access to commodities, gold mining companies and exchange-traded funds (ETFs) if you’d rather not trade physical gold. Many find this method to be more accessible.
Alternatively, you could buy shares in gold mining companies. This allows you to invest in and make potential profits from gold indirectly. Depending on the company you invest in, you could also gain capital through dividends, where shareholders receive a cash payment at set times during the year. You should keep in mind that beyond the value of gold, share prices can also be influenced by factors like geopolitical tensions and profitability.
When deciding on the best ways to invest in gold, make sure you consider the advantages and disadvantages of each option and dig deeper to shape your strategy so that you’re more likely to maximise potential profits.
