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In today’s volatile economic environment, having the wrong asset mix in your investment portfolio can lead to significant losses. After all, everything from market fluctuations to geopolitical tensions, high inflation and other economic uncertainties can drive down the value of your portfolio if you aren’t using the right asset mix to offset risk.
A well-diversified portfolio, on the other hand, is prepared to weather most types of economic storms. That’s because, by diversifying your assets, you mitigate the risk by spreading your money across various classes, sectors and geographies. That way, when certain investments are performing poorly, the other assets in your portfolio can compensate for the losses.
While that may sound complicated, there are a few simple ways to diversify your portfolio. Below, we’ll detail what you should know about the simple, low-risk options you have for doing that this July.
Find out how gold investing could be the right solution for you.
6 simple, low-risk ways to diversify your investment portfolio this July
Here are the options you may want to consider if portfolio diversification is a priority right now:
Invest in 1-ounce gold bars
Investing in 1-ounce gold bars is a straightforward way to add gold to your portfolio. These assets offer the potential for long-term appreciation and are one of the most affordable gold bullion options available. And, owning physical gold can provide a sense of security to investors due to its tangible nature.
These smaller gold bars are also small enough to be stored in a home safe or bank safety deposit box, cutting down the associated storage costs. And, because of the lower price point, 1-ounce gold bars can be easily liquidated when necessary, especially if they were produced by a well-known mint.
- What to consider: When purchasing physical gold, ensure you buy from reputable dealers to avoid counterfeit products. You should also factor in the extra insurance costs that come with owning physical gold when making a decision. And, be sure to factor in the premium over the spot price of gold, which can affect your overall returns.
Explore the many benefits of adding gold to your investment portfolio.
Consider fractional gold
For those looking to start smaller or maintain more flexibility, fractional gold options could be worth considering. One big benefit of fractional gold is that it allows you to gradually build your gold holdings without committing to full ounces, making it more accessible for a range of budgets. There’s typically also greater flexibility in terms of selling these small gold coins. After all, because these smaller gold investments are more affordable, there’s a wider pool of potential buyers, which comes in handy if you need to liquidate some of your holdings.
- What to consider: While fractional gold offers more flexibility, be aware that the higher premiums can eat into your overall returns. So, be sure to calculate the cost per ounce to ensure you’re getting a fair deal.
Buy gold mining stocks
Investing in stocks for gold mining companies lets you gain exposure to the gold market with the potential for higher returns and dividends — and without the hassle of holding physical gold bars or coins. By buying these stocks, you have the opportunity to benefit from company growth and efficiency improvements, and if you time it right, your gold stocks can potentially outperform the returns on physical gold.
However, gold mining stocks can be more volatile than physical gold, as they’re subject to company-specific risks as well as gold price fluctuations. So, before you use this gold investing option for diversification purposes, be sure to consider factors such as management quality, operational efficiency and the geopolitical risks associated with mining locations.
- What to consider: Look for well-established mining companies with strong balance sheets and a history of efficient operations. And, consider diversifying across multiple mining stocks to mitigate any company-specific risks.
Opt for gold ETFs
Gold exchange-traded funds (ETFs) allow you to invest in gold without having to hold physical gold bullion, making them a simple and potentially lucrative way to diversify your portfolio with gold. Like stocks, gold ETFs track the price of gold and can be bought and sold through most trading platforms or brokerage accounts, making it easy to liquidate them if you need to.
However, you should be aware that investing in gold ETFs is a bit riskier than buying physical gold, as there’s potential for tracking errors. And, gold ETFs come with annual expense ratios that can impact returns over time.
- What to consider: Do your research on different gold ETFs to find one with low expense ratios and minimal tracking errors to maximize the potential returns and reduce the risk tied to this type of gold investment.
Add gold mutual funds to the mix
Gold mutual funds invest in a variety of gold-related assets, offering diversification within the gold sector itself. These funds are professionally managed, which can be beneficial if you prefer a hands-off approach. They also provide exposure to multiple gold-related assets — and this type of gold investment has the potential to outperform other, more passive gold investments.
However, gold mutual funds typically have higher fees compared to gold stocks or gold ETFs — and there’s always the potential for underperformance due to management decisions. You also have less control over specific investments within the fund.
- What to consider: It’s important to compare the fund’s performance history against relevant benchmarks and consider the expense ratio when choosing a gold mutual fund.
Invest in silver or other precious metals
Diversifying beyond gold into other precious metals like silver, platinum and palladium can provide additional portfolio balance. Each of these metals has unique supply-demand dynamics and industrial applications, which can affect their price movements differently from gold. This diversification within the precious metals sector also offers potential for higher growth due to industrial demand.
And, these metals are often more affordable than gold, allowing for easier entry into the market. However, these metals can be more volatile than gold and may require more research. For physical metals, storage and insurance considerations are also factors to keep in mind.
- What to consider: Research the specific supply-demand dynamics of each metal. For example, silver often has a higher industrial demand, while platinum and palladium are crucial for other uses.
The bottom line
Diversifying your investment portfolio with gold and precious metals can provide a valuable hedge against economic uncertainty and inflation. By spreading investments across various gold-related assets and other precious metals, investors can potentially reduce overall portfolio risk and position themselves to benefit from different market conditions. However, it’s important to remember that diversification is an ongoing process. Regularly reviewing and adjusting your portfolio allocation is crucial to maintaining an appropriate balance that aligns with your financial goals and risk tolerance.