Gold is often seen as a safe haven for investors, particularly during times of economic uncertainty or when fears of inflation or a recession are high. However, whether gold is an effective addition to your portfolio is dependent on your personal investment goals and appetite for risk.
Investors can buy physical gold in the form of bullion, coins or jewelry. Many financial advisors suggest keeping no more than 10% of your portfolio in this asset class, as gold can be quite volatile in the short term and doesn’t typically offer higher returns than stocks during periods of strong stock market performance.
Buying gold directly requires a significant upfront expense and ongoing storage costs. However, it can be a satisfying way to diversify your portfolio. Those looking to minimize the hassle and cost can consider investing in gold mutual funds or ETFs, which track the price of gold and generally have lower minimum investments than purchasing physical metal. These funds also usually come with lower expense ratios than bullion investments.
Another option is to invest in the companies that mine gold. These stocks are often easier to manage than the idiosyncratic gold market and may perform well during both rising and falling markets. However, these investments are not without risks and require a certain level of expertise, you can read more here.
One of the most speculative ways to invest in gold is through futures and options contracts, which are traded on exchanges and give the contract buyer the right (but not the obligation) to purchase or sell a standardized quantity of metal at a set price on or before a specified date. These instruments can be very volatile, and investors who overuse them can quickly find themselves on the wrong side of a losing trade.
Regardless of the type of gold investment you choose, it’s important to discuss it with your Morgan Stanley financial advisor and make sure it fits with your overall investing strategy. Your advisor can help you determine how much to allocate in this asset class, taking into consideration your personal investment goals, risk tolerance and current portfolio holdings. They can also work with you to find potential opportunities in the gold market if they think it would be beneficial to your long-term investing success.