Alternative assets are a category of investments beyond the stocks, bonds, and currencies that make up the majority of the everyday investor’s portfolio. Stocks and bonds are common financial products, and they are a great way for investors to start, but they are not the only products you can include in your portfolio.
There may come a point when you decide that you need to diversify your holdings. Some assets respond differently to events and economic conditions than stocks or bonds. They have the potential to help you weather bad economic conditions, financial or geopolitical crises, or maintain your savings during periods of high inflation.
Alternative assets include real estate, commodities, cryptocurrencies, private debt, and collectibles (like art or rare wines). Here, we’re going to look at one alternative asset in particular: gold bullion, with tips on how to buy it and what kind of role it can play in your portfolio.
Where to Buy Gold Bullion
Physical bullion remains a popular way to invest in gold, despite the proliferation of alternatives like gold ETFs. It’s straightforward to buy and provides a level of reassurance and certainty.
You can buy physical gold bullion from a local gold dealer. The products you’re looking at will largely be gold coins and bars. These products sell for the spot gold price (as determined by market trading) plus a premium that covers the dealer’s own costs.
You can check out GlobalBullionSuppliers.com to see what kind of bullion products are commonly available, including coins and bars in both gold and silver.
When you buy and own physical gold, you know what you’re getting, and you can hold the asset in your hands. Many investors appreciate the unique attributes owning physical gold provides, including:
- Direct control over the asset
- No counterparty risk (i.e., mismanagement or corporate fraud) that can come with an ETF or investing in mining stocks
Tips for Buying Gold Bullion
When you buy gold as an investment, getting the best possible price is a major concern. You want to be able to maximize your returns when you sell, which often means saving as much as possible on the purchase price.
Many gold dealers offer lower prices when you pay with a cheque or e-transfer instead of a credit card. The processing fees for credit cards become considerable when it comes to major purchases like gold coins. While you may have to wait longer for other payments to be processed, the savings are often significant.
You may also want to invest in the most common types of gold because they have higher liquidity (i.e., they’re easier to sell down the road). These are usually 1 oz. gold coins and bars.
Reasons to Invest in Gold Bullion
Investing your savings has always been a crucial part of building enough wealth to retire. While it’s important to create an emergency fund, in an inflationary environment like today’s, cash savings quickly lose their value.
It often makes sense to start with stocks and bonds, especially using investments like mutual funds or ETFs that don’t require much attention to begin with. But as your savings grow, it can also be a smart move to expand your holdings and add different types of assets, to benefit from a wider range of attributes. These are some of the things that gold can do for your portfolio.
1. Diversify Your Risks
Gold has historically been uncorrelated to stock prices. When stock markets crash, gold is largely unaffected. Conversely, prices may not grow when stocks are performing well. Adding gold to your investment is largely about reducing risk more than boosting your returns. It’s widely seen as a great asset to own during times of market turbulence.
Even gold’s skeptics agree that it’s worth dedicating part of your portfolio to gold, even if they caution against relying too heavily on the precious metal. In this regard, gold is like any asset. Over-committing comes with risks, and in the case of gold, that risk is missing out on rapid growth in stocks or income generated from dividends or bonds.
2. Hedge Against a Crisis
If you’re worried about the effects that pandemics, wars, geopolitical tensions, and an uncertain future can have on your savings, gold is an asset that provides peace of mind. Historically, gold prices have increased considerably when the world seems uncertain and dangerous.
It always pays to be prepared. It may not take long for gold prices to soar when the stock market crashes, or a crisis grows out of control. When earth-shaking events like these happen, it doesn’t take long for the market to respond. It’s those who already own gold who will see the biggest price gains.
Anyone not already prepared to weather a tough market will be playing catch up. If you’re preparing your portfolio for uncertainty, gold already needs to be part of your savings plan.
3. Protect from Inflation
There is some debate over how effectively gold protects against inflation. Depending on the period you look at, it performs better than others.
But in historical terms, gold has done a remarkable job keeping up with the cost of goods, including everything from groceries to vehicles. While assets like stocks have delivered astronomical returns over the last century, much of the purpose of investing in gold is preserving purchasing power on a generational timeline.
Growth is an important investment goal, but gold can help with different financial goals, such as:
- Leaving behind wealth to future generations that won’t lose value in a crisis or to inflation,
- Maintaining purchasing power in the face of hyperinflation,
- Storing value in an asset that can survive a loss of confidence in currency.
Precious metals can play an important role in your portfolio. Take advantage of the unique attributes provided by bullion to protect your savings against the unpredictable.