Don't Buy Gold Out Of Fear
Don't Buy Gold Out Of Fear
Gold is shiny and pretty, but is it a good investment? Perhaps you heard a radio commercial advertising gold as a "safe investment" for your IRA and even willingly providing a "free" safe to store your gold bars or coins. You may have heard that adding gold to your portfolio can reduce the overall risk of your investments and protect against economic downturns. These ads play on people's fears about the economy or the stock market, suggesting that gold is the only safe investment option. If the idea of owning physical gold as a tangible asset provides a sense of security, consider the risks and costs associated with gold before deciding to concentrate your wealth in this one type of investment.
Diversify
Diversification is a key element in achieving success in investing. Spreading your investments across various asset classes, will lower the level of risk and increase the probability of positive long-term results.
A well-rounded investment portfolio generally consists of a combination of stocks, bonds, and various asset classes, such as real estate or commodities. This diversification strategy enables you to take advantage of the potential gains from different investments while minimizing the negative effects of any single investment's underperformance.
While gold can be a part of a diversified portfolio, it should not be the sole focus of your retirement planning. By incorporating a variety of assets, you can build a portfolio positioned to withstand market volatility and provide you with a more stable financial future.
Potential Drawbacks of Investing in Gold
Gold is a precious metal that falls under the asset class commodity. A commodity's value is determined based on supply and demand. Gold becomes an attractive haven when fear is high and investors expect the market to decline. But the price of gold has an inverse relationship to equities. When the stock market does well, gold tends to fall. 
Over the long term, gold has acted as a hedge against inflation. However, it's important to note that gold does not produce earnings like companies. Whereas companies have an incentive to find ways to make money for their shareholders and to pay back debt obligations to keep credit ratings high, gold has no such incentive. Gold's primary job historically has been to look pretty. More recently, it has been employed to serve as a conductor of electricity. So unless you are a jeweler or semi-conductor manufacturer, holding a large concentration of gold in your portfolio will lead to lackluster returns.
Holding physical gold presents it's own problems. Primarily, how to store it and how to sell it.
- Storage: If you keep gold in your house, you need to make sure it is secure and not at risk of being lost or stolen. If you keep it in a bank, you are subject to the safety deposit box fee, and can only access it during banking hours.
- Liquidity: If you need access to funds to pay your bills, you need to know where to go to sell the gold and exchange it for cash. You can't sell gold to a bank. Pawn shops will likely buy your gold, but at a steep discount. According to goldfellow.com, you'll need to "seek out reliable professional gold jewelry buyers who offer fair and objective evaluations." If you want to own the tangible asset, be sure to connect with a reputable jewelry buyer who specialize in precious metals.
Fear-Based Marketing Tactics
Fear is a powerful emotion. When you hear commercials that inspire fear, recognize and pause before taking action. In general, making any investment decision based on emotion is a bad idea. Advertisements promoting gold IRAs use fear-based marketing tactics to try and convince you that your retirement savings are at risk and that gold is the only solution.
These ads often portray a bleak future, emphasizing economic uncertainty, inflation, and political instability. They create a sense of urgency and fear, suggesting that if you don't act now and invest in gold, you will lose everything. While it's natural to have concerns about your financial future, it's important to make investment decisions based on facts and careful consideration rather than fear.
Before you make any investment decision, look up the broker or advisor selling the product or service to make sure they are reputable. Some of these charlatans peddling gold are not registered with either the SEC or FINRA.
Investment Options for Retirement Planning
While gold may have its place in your investment portfolio, it's important to consider alternative investment options for your retirement planning. Diversification is key to building a balanced portfolio that can weather different market conditions.
Consider consulting with a financial advisor who can help you explore different investment options based on your individual goals and risk tolerance.
If you need professional assistance managing your financial portfolio during good and bad markets, consider reaching out to Hurlow Wealth Management Group. Their team of advisors can provide the guidance you need to make informed decisions about your retirement investments. Schedule a call with an advisor at Hurlow Wealth Management Group here.