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Understanding the Importance of Gold in an Investment Portfolio

Understanding the Importance of Gold in an Investment Portfolio

In the investing world, one should never put all their eggs in one basket. This simply means that an investor shouldn’t put all their investments under one category or asset class. Otherwise, a decline will mean all investments will be lost. Spreading out investments is the key to balancing the risk factor.

To better understand how risk works in an investment portfolio and how to mitigate it, an investor should understand that investing in gold is important because of its correlation with other investment categories, like stocks.

Read on to understand this concept further and understand the dynamics of gold in an investment portfolio.

Understanding the Concept of Correlation

All stocks and other investments move in value based on some fundamental factors. The overall economic condition of the country, the future expectations, demand and supply, government policies, and much more. The company’s own performance also matters.

Micro-economic factors affect each stock’s performance, so it’s important to understand those when building a balanced portfolio. However, the macro-economic factors affect multiple industries, and that’s when the importance of having un-correlated assets is realized.

Investing in gold bars and coins is a smart move to make since it’s historically been an independent asset class when compared to traditional investment classes. To say that gold is the best source of diversification would certainly be valid.

Other Benefits

There are some other benefits of having gold in an investment portfolio as well.

Inflation Hedge

If the economy isn’t giving adequate returns, the inflation rate will trump the low returns. This would render those returns useless as the real returns would be near zero or even negative.

Thus, gold provides an excellent hedge against inflation even if it doesn’t provide high returns like other stocks.

Less Volatility

Another factor that makes gold a safe haven for investors is the stability it entails. Unlike certain asset classes like a cryptocurrency that’s prone to price bubbles, the value of gold is backed by physical assets. This helps investors develop trust in its value and thus helps keep prices stable.

There’s no denying the importance of gold in an investment portfolio. Make a wise choice today and buy gold bars and gold coins. At Orion Metal Exchange, we offer high – class gold bullion coins and trustworthy gold IRA services to help you make a balanced portfolio.

Get in touch with us for more information on our services.

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