Does Gold Help with Portfolio Diversification?
When it comes to investing, you’ll want your portfolio to be optimally constructed to mitigate the impact of losses and be on the safer side of things.
The key term here is portfolio diversification; this helps spread out your investment portfolio into different investment options to keep you from losing all your investment in one go if you were to invest in only one option.
Investing in gold is a great option to achieve diversification for your portfolio, but is it effective enough? Are there other investment options that help do this job better? Let’s find out!
Benefits of Having Gold in Portfolio
Gold has always known to be a safe option in times of a financial downturn in the economy. The financial crisis of 2008 was devastating. As a result, the US stock market came crashing down. The Dow Jones Industrial Average went down by more than 777 points in intraday trading.
Gold is known to have an indirectly proportional relationship with all asset classes; if all investments are falling in value, gold rises. This is because it’s a tangible asset and is always assumed to be a safe and attractive investment during recessions.
Does Having Gold in Portfolio Always Help?
Although gold does provide a safe option for investors, stocking up on gold in your portfolio will not be a wise decision to make. It’s a tremendous hedge against inflation and good source of portfolio diversification to an extent. However, meddling with the market forces of demand and supply will cause an imbalance, thus affecting the gold value.
Verdict
Historical data indicates that the correlation between gold and the Dow Jones Industrial Average hasn’t been quite strong. Although gold does provide a sense of security in case of a market crash, it’s not a great source for profits at most times, and only acts as a means to mitigate the effects of a recession.
Beyond this, gold does not provide such monumental returns that filling your investment portfolio with gold is a good idea.
Thus, gold should only be used to a certain extent to prepare for extreme downturns in the economy, and if you plan to invest in gold, doing it for the long term will be a wise decision.
So, take the first step towards investing in gold coins and gold bullion bars by getting in touch with us at Orion Metal Exchange — one of the best gold investment companies out there! We offer assistance in buying gold and make the whole process as simple as possible for you.
