Gold is a common asset for investment portfolios, but what’s the right amount for yours? With over a 300% increase in price per ounce between 2005 and today, it’s certainly a commodity worth consideration for any investment portfolio.
Most economists recommend allocating 60 percent of your portfolio to stocks and 40 percent to bonds, the majority of which are low-cost index funds. Recently, investors have taken a keen liking to Gold in their portfolios as well.
Sure, the commercials you see on TV with an overly enthusiastic spokesman pushing the metal may seem over the top and gimmicky, but they do have a point. The amount of Gold in the world is finite. In fact, the World Gold Council estimates that all of the Gold that has ever been mined equals about 174,100 metric tons. If you were to evenly distribute that among the world’s population, it would come out to less than an ounce per person.
Some key investment figures are on board with the investment in Gold as well. Harry Brown, author and onetime Libertarian presidential candidate, recommended 25 percent allocation of investment portfolios to gold. Richard Fisher, the president of the Dallas Federal Reserve Bank has over $1 million of gold investment in his own personal portfolio.
One important factor to keep in mind about Gold as an investment is that it’s price is largely uncorrelated with stocks and bonds. As the key to a solid investment portfolio is diversification, adding it into yours can reduce your overall risk. That doesn’t mean you should give it an equal weight to your bond investments, but by keeping a sliver of it in your long-term strategy, roughly 2-3 percent as it weighs in the world market portfolio, you can decrease your risk, increase your return and add some much needed diversification to your portfolio.
Source: Economic Times