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Investing in gold can have a positive impact on your portfolio. After all, gold offers diversification value and protection from market risks, which can help improve your risk-adjusted returns. But, that’s only if you make the right decisions when investing in the commodity.
At the moment, the price of gold is cooling. So, it may be a good time to make your investment. While gold is an attractive commodity that’s trading at a lower price than its recent high, there are some mistakes you can make when investing as the price cools. Below, we’ll break down three of them.
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3 gold investing moves to avoid with the price cooling again
With gold’s price cooling, it can be easy to make rash investments led by the fear of missing out on the current discount. But, it’s important to make well thought-out investment decisions. In doing so, you’ll be able to avoid common mistakes. Here are a few mistakes you should you should avoid as you buy gold with prices cooling:
Buying too much
Considering the fact that gold is trading at a lower price today than its recent high, you may be enticed to purchase as much of the commodity as you can. But, that could be a mistake.
While gold often has a place in a well-diversified investment portfolio, diversification is key. And, most experts say that your gold holdings shouldn’t account for more than 10% of your total portfolio. Some experts say that even a 10% allocation to gold might be too much.
“Gold shouldn’t make up more than 5% of your overall portfolio,” explains Aaron Cirksena, founder and CEO of the financial planning firm, MDRN Capital.
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Investing in the wrong type
There are multiple ways to invest in gold, ranging from physical gold like coins and bars to gold exchange-traded funds (ETFs) and gold IRAs, each of which can be affected by a cooling price differently. So it’s important to understand how cost affects each before getting invested. Each of these gold investing options has pros and cons to consider. It’s important to weigh those pros and cons and how each of these gold investment types fits with your investing goals and avoid being simply influenced by a change in price.
Getting invested with the wrong mindset
Considering the rise in value we saw in gold from January through late-May, it can be easy to consider the commodity as an asset you can use to turn a profit quickly. But, that’s not the best approach to take when investing in gold.
“It has had long stretches where it didn’t perform well, so betting big on gold to get rich quick isn’t a good idea,” says Cirksena. “It’s smarter to keep your investments balanced and diversified.”
Ultimately, it’s best to look at gold investing as a way to diversify your portfolio and keep it safe from risks like inflation and market volatility. If gold performs strongly, then that’s an added advantage. But, you shouldn’t invest in the commodity expecting an 18% price increase every five or six months as such price movement would be unlikely.
The bottom line
As gold’s price cools, you may decide that it’s time to invest in the commodity. But, when you do, avoid allocating more than 10% of your portfolio to it and be sure to go into the investment with the right mindset, using gold as a hedge against risk rather than a get rich quick commodity. Moreover, think about the various ways you can invest in the precious metal and choose one that fits with your portfolio and goals. Chat with an expert about investing in gold today.