From time immemorial to the rise of our super-modern technological era, the history of humanity has been formed in many ways around the acquisition of gold. Some say this is a simple case of simple outdated fascination in a barbarian relic and no longer holds value as it did in the past. After all, most of us will achieve wealth in paper money and never actually own a gold coin in our lives.
So, has the value of gold diminished with the rise of digital currencies and modern financial technology? According to the experts, not at all!
Let’s look closer at three important reasons investing in gold is one of the best assets for any investor’s portfolio.
Why do investors buy gold?
Gold a timeless asset that has played a central role in economies from ancient civilizations like Akadia and Egypt to the modern superpowers. While it is no longer the most relied upon a unit of currency as it once was, it’s still one of the most reliable investments and plays an especially important role in times of economic instability or collapse.
One of the best reasons to invest in gold is for its impressive capacity to hedge accumulated wealth against economic upheaval. Today’s smartest investors will accumulate gold to protect against inflation and social unrest. To put this simply, the value of gold tends to rise with the cost of living. This capacity is a primary reason that gold reduces the risks to investor’s portfolios.
Therefore, if the currency loses its value because of inflation, the cost of gold increases. This means that the investor with a gold portfolio has protected the value of their wealth against inflation, called “hedging”. As inflation increases and negatively impacts the value of the economy, the value of gold increases. Therefore the investor is well compensated for every ounce of gold they own.
The price of gold will fluctuate just like the economy, but in the long term, it will perform far better than other accumulated assets like property. Unlike stocks or bonds, the ROI of gold is based on price appreciation. Of course, gold has other considerations for the investor. Because it is a physical asset, it must be properly insured and stored. This is something that will have to be considered when adding gold to one’s investment portfolio.
Furthermore, the value of gold will not be moved in the same way the value of stocks and bonds will. Because gold will not be affected by the same drop and rise as the stock market, it’s a foolproof way to diversify your investment portfolio.
Diversification is an important term to the investor and basically means that wealth is spread across a variety of different asset classes. This way, if the asset value drops considerably, there is a good chance that the other asset classes can help to compensate for the drop.
Even with gold, however, diversification is important. If the price of gold decreases — and it can and it will — all gold investments will take a beating. If, for example, many gold hoarders decide to sell their cache at once, the value of gold will drop and take the investment portfolios with them.