Gold is a popular investment, with many people considering it a safe haven from market volatility. For some, gold is not only an investment but also a valuable, sentimental item and even more so as the price continues to rise. However, before buying anything gold-related and investing in it, be sure you know how much you should have, mathematically speaking.
Gold is a popular investment thanks to its safety net from financial downturns or high-risk securities issued into our economy. Since 2009, the price of gold has risen tremendously, up 740% from $856.80 to over $1200 at the time of writing this article. No matter how rich or poor you are, gold is a popular investment choice for safety and security.
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How Much Gold Should I Have?
Everyone has a different amount of gold, but it's found mainly by taking your total asset value, adding up all of your current gold holdings, and comparing it to your total asset value. For example: If you have $500,000 in assets and $12,000 in gold investments, you would have 4% gold.
However, if you take that same $500,000 in assets and invest it completely in gold coins or bullion then your allocation would be 50% which is a bit more than most people invest. However, this can be useful in volatile times when stock markets and economies are performing poorly. For example, during the 2008 financial crisis, when the stock markets were tanking and money was getting tighter, many people started buying gold as an investment. So at that point, it would be good to have your gold investments above your total assets to show you are prepared for any bad situations (a rainy day fund).
If you have no investment in any gold, then it would be best to make sure your gold investments are above your total assets as well. Like with stocks, there is always the possibility for a stock market crash, which depends on many factors like international events, local economic conditions in the area, and more. Some experts in the field of economics even predict that with our current economic policies, a stock market crash is almost guaranteed shortly.
Generally, it's always a good idea to have as big of a safety net as possible. It is because your assets might fall in value during a financial downturn, and gold will maintain its worth. Gold is also popular with people who enjoy holding onto gold bullion and coins as a hobbyist or for sentimentality. With this being said, having any amount of gold is better than no gold at all because there are endless possibilities for all types of situations when it comes to the economy.
The higher your allocation of gold, the safer you will be in uncertain or high volatility. In the end, you want to be sure you have enough gold to get through any bad times that may come your way.
How Much Gold Is Too Much?
Many worry about how much gold they should have and the proper amount. To find the answer to this question, you will need first to understand how much gold your investment portfolio is worth. If you have $500,000 in assets across all savings accounts, investments, real estate investment property, stocks, bonds and cash holdings, that's an excellent place to start.
Knowing this number, you will want to take your gold holdings and add them to the total of your assets, giving you a rough estimate of how much gold you actually have. For example, if you had $500,000 in total assets and $12,000 worth of gold coins or bullion, your allocation would be 4% gold. It is a reasonable amount of gold, considering the value of all the other assets used.
You may ask yourself if it's reasonable to have an allocation higher than 10%. Many people have done studies that show that having a share of 20% or higher is a lot more than most people need to protect their assets. If an investor only has $1,000 in total assets, it would be nice to have gold coins or bullion to defend them. It is because gold will always hold its value and is not reliant on the global economy's health like stocks and bonds.
Gold can also be seen as a type of insurance policy. In the end, having too much gold could backfire if you were forced to sell at certain times, such as during a run on precious metals or when it's hard to buy gold coins if needed. In the end, gold should make up less than 10% of an individual's assets because gold is a moderately liquid asset.
So this means that gold should make up less than $100,000 in total assets. When you have $100,000+ in assets, it's time to evaluate your needs and see if you are ready for a higher allocation of gold. Remember, gold is a beneficial asset and can serve many purposes besides protecting your investments.
Types of Gold
Gold can be in the form of coins or bars (called bullion). Gold bars are more valuable than gold coins because they are more standardized and easier to trade. It is because there are only sometimes enough gold coins to meet the demand for trading. For example, if you only had $100 in cash, you could buy 100 $100 silver coins. However, this would take up too much space and inhibit you from possessing other assets.
As a result of this, it's far more efficient to store gold in the form of bullion. Bullion is held as a type of inventory for trading purposes. Another advantage to gold bullion is that you will have the most liquidity with your investment if you choose to sell at any time.
Another option is a rare coin, or rare collectable or an antique item. With these types of investments, investors tend to hold them for extended periods without ready access to cash. Also, because these assets are considered collectables, there is no set price for which they are sold.
The value of collectables tends to rise and fall with the product's popularity. For example, if you purchased a rare toy from the early 1900s, you would expect it to increase in price as time goes on. Some people enjoy holding collectable items and showing them off just because they want to own them. Also, collectors will pay more than the actual worth of something based on how rare or old the item is.
Another problem with collectables is that they are usually difficult to sell at the exact price you want. They tend to be very subjective in how they are valued. Just because you paid $20,000 for something doesn't mean someone else will pay the same price for it. Collectable items also can be tough to liquidate at times, and there is always some risk involved.
How Much Gold Should I Buy?
Investors generally put around 10% of their net worth into gold, but if you choose not to do this, then make sure you still have some gold in your portfolio for the long-term protection of your wealth.
One way to determine the proper amount of gold is to look back at history. If you had invested $20,000 in gold coins or bullion ten years ago, and the price of gold was $1,000 per ounce, would you have been happy with that investment return? Knowing this information, you can calculate what percentage of your net worth should be allocated to gold coins or bullion.
Another way is to add all your assets, including investments, real estate holdings and cash. Then divide this total asset sum by the overall current value of your entire portfolio. It will give you a rough estimate of how much gold should be purchased. For example, if your total portfolio value is $500,000 and you want to find out how many gold coins or bars you should buy, then divide $500,000 by $12,000. You would need to invest around $250,000 in gold.
Be careful, as it may be challenging to find an investment with such low-risk percentages and a high return rate without fail. Remember, this is just an estimate of how much gold should be invested. You still need to research the market and ensure this investment meets all your requirements for risk and return before investing any significant amount of money in it.
Investment in Gold
Gold coins or bullion are intelligent investments because they are easier to buy and sell than other precious metals. For example, one form of gold bullion is gold bars. These bars are purchased in many ways, such as through traditional banks or the internet.
The most common way to invest in gold is through gold coins, which are measured in a standard weight like other types of money. Investors typically buy coins from coin shops, online merchants and banks that offer physical gold.
Alternatively, gold is purchased through exchanges, but there are very few. The most popular ones are located in the United States and Europe. Gold has been traded on exchanges since 1971 and is considered a commodity. Since gold is such a vast market, it's no wonder that many people are attracted to it.
Storage of Gold
Investors typically prefer holding their gold bars, coins or bullion at home or in a bank vault. If you have your precious metals at your home, they should be kept in a safe location where there is little risk of being stolen by others. As far as the location of the safe, you can hold gold at home if it's not in a highly secure building.
Another popular storage option is that of a bank vault. Banks typically keep gold bullion or bars in these vaults, depending on their clientele. Banks also have special requirements for holding this type of asset, so it's essential to meet them to keep your gold correctly. In addition, banks will typically charge an extra fee for storing this asset.
You can also buy gold and store it in your home in small quantities or through a significant amount over time if you have more than one home and find it convenient.
There are many ways to invest in gold other than buying it for cash. A common practice is to own gold coins or bullion. It is done by purchasing at a coin shop or an online dealer like eBay. Another way to invest in gold is by using precious metals futures, contracts allowing you to trade physical gold between dealers for a set price later on.
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