If you’re looking to begin investing, you’ve come to the right place. You may be wondering what kind of investments you should buy. Regardless of the amount of money you have to invest, it’s important to diversify. The old adage “don’t put all your eggs in one basket” is true of investing.
See: 3 Things You Must Do When Your Savings Reach $50,000
Some investors think that buying mutual funds or ETFs is enough diversification in their portfolio, and that investments like commodities are too complex or risky for beginning investors. That may not be true, especially when it comes to gold.
Here’s what you need to know about why beginning investors should buy gold.
Is Gold a Good Investment for Beginners?
Gold can be a very good investment for beginning investors. Here are some reasons why.
1. Gold Can Act as a Cushion
Gold tends to move independently of stocks, bonds and other traditional investments. It is less affected by market movement, currency fluctuations and geopolitical forces. While it can certainly decline in value, just like any other investment, it can bring balance to a portfolio and will act as a cushion in turbulent times.
2. Gold Is an Inflation Hedge
The dollar has had a tough time of it lately, with rising inflation that erodes its purchasing power. While inflation is a common event in the economic cycle, gold can mitigate its impact by retaining its value even as currencies like the dollar decline.
3. Gold Is Historically Stable
If you think you will get nervous seeing your investment account balance go up and down on a daily basis, gold may be a good choice for you. While its value will fluctuate over time, it tends to be less volatile than many other types of investments.
4. Gold Is a Good Long-Term Investment
Beginning investors can sometimes be too jumpy — whether out of fear or excitement — and move their money around frequently. Because gold is resistant to large price swings in short periods of time, investors who tend to sell at the first sign of a sharp decline will typically stay put. And investing for the long term is a proven strategy for successful investing.
How To Invest In Gold
Investing in gold used to be limited to the super-rich, who would store gold bars in their safes. They did this in order to protect their wealth against a market downturn or a decline in the dollar. When there was uncertainty in the market, the wealthy would move their assets to gold.
If it’s good enough for the super-rich, it should be good enough for those of us with more modest portfolios, right? The problem was that super-rich investors were buying gold bars, which cost more than the average investor could afford. And you couldn’t buy a fraction of a bar.
Fortunately, times have changed, and you can now buy gold in many ways, even with a small amount of money. You can buy a gold exchange-traded fund like iShares Gold Trust (IAU) or SPDR Gold Shares (GLD). You can also invest in the stocks of gold mining companies, like Newmont Corp. (NEM) and Barrick Gold Corp. (GOLD).
You can also purchase physical gold. If a 1-ounce gold bar is too pricey at about $2,000, you can buy gold coins or gold jewelry. Just be sure that you know the actual gold content of what you are buying, and buy from a reputable dealer.
What To Watch Out for When Investing In Gold
Gold is a commodity, and as such, is commonly traded on the futures market. A futures trade involves a type of prediction as to how the investment is likely to move in the future. Think of it like a bet — in this case, you’re betting that the price of gold will go up or down. If it does what you thought, you make money. But if it doesn’t, you lose money — sometimes a lot of money. So when you are investing in gold, especially as a beginner, make sure you’re buying the actual commodity, not a futures contract.
The most important thing for a beginning investor is to start. Whether that is by buying gold, stocks, bonds, mutual funds or something else, take the first step. And there’s no reason to shy away from gold as a beginning investor.
Final Take
Beginning an investment journey may seem overwhelming, but it doesn’t have to be. You need three things: a little money, a little knowledge and some discipline.
The money part is the stumbling block for most people, but it’s more important to start now than to start big. In other words, start investing a little money regularly now rather than waiting until you have a big chunk of change.
The discipline part trips some people up too. Here’s a pro tip: Put your investing on autopilot. Schedule a periodic transfer from your checking account into your investment account, preferably on the day after you get paid so you don’t miss it. Again, it can be a small amount to start with, and you can increase it as time goes on (and as you see what investing can do for you).
As for knowledge, it’s a good idea to have some knowledge about how investing works, but you don’t need a degree in finance to start investing. Don’t let analysis paralysis keep you from starting.
FAQ
- Should beginners invest in gold?
- Yes. Gold is a good inflation hedge and can diversify your portfolio. And you can invest even a small amount in gold by buying a gold ETF or the stock of a gold mining company.
- How much should I start investing in gold?
- Gold should be a part of your portfolio, but just one part. Take a look at your investing goals and consider how much risk you are willing to take. This will help you determine how much of your portfolio should be in gold.
- Can I invest $1,000 in gold?
- Yes. With this amount, you can buy gold ETFs or shares in a gold mining company. You can also buy gold jewelry or gold coins as an investment.