Is Gold Right for Your Portfolio?By Larry Lane for InvestorZoo.com You’ve heard the gloom and doom news about the US economy. You’ve seen orheard advertisements on the TV and radio pitching gold as a hedge incase the worldcomes to an end. With gold near all time highs, you might be questioning if gold is agood fit in your portfolio.
Gold is considered an inflation hedge and normally outperforms thestock market during stretches of uncertainty. Below are some historical returns:
In 1980, the price of gold started at $524 per ounce. Thirty yearslater, gold is now trading at about $1100. The S & P 500 on the otherhand was trading at 107.94. At time of writing, the S&P 500 nowtrades at 1135. This is not to say that there have not been periods of time where gold has outperformed stocks. Gold outperformed stock in the late 70’s and early 80s as well as the last decade.
You might be of the mindset that we are in a different world than we were 30 years ago. You also might be concerned about the US government’s trillion dollar deficits and the possibility of runaway inflation.
Like most investments, there are many ways to participate in the gold market.Coins
The most popular form of gold ownership is through the purchase of gold coins. You can purchase gold coins directly from the US government, there is no need purchase gold coinsthrough broker or middleman. The US mint website is
www.usmint.gov. Expect to pay a premiumover the cost of the price of an ounce of gold when purchasing collectible coins.
If you decide to purchase physical gold, you need a way to store it. The most popular way to store gold would be a through a safety deposit box at your local bank. Expect topay about $20 per month. This expense must be taken into account when purchasingyour investment. If you incur a storage fee, expect to add at least $250 in expenses per year to store your purchase. This can put a considerable damper on your investment.StocksMuch like other sectors, there are many ways to invest in gold stocks. These stocks canfall into the small, medium and large cap arena. There are companies that specialize indomestic mining as well as internationally. Companies may hedge their miningoperations through the futures market. This may affect net profits.Gold Mutual FundsIf you are interested in purchasing gold stocks but don’t have the time or knowledge todetermine which company is worthwhile, a mutual fund might be a good alternative. Atypical mutual fund might have 20 or more gold stocks in their portfolio. While you arespreading your risk among several companies, your overall investment is still tied toclosely to the price of gold and the economy.Exchange Traded Funds (ETFs)Exchange traded funds are also available.
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