For Gold Investors, Diversification of Portfolio Key Benefit from Buying Gold
Recent reports from the World Gold Council show that gold investors have had it right all along: nothing else helps a portfolio quite as powerfully as the yellow metal. All investors have heard that diversification is key when building a portfolio and buying gold, said the WGC in a recently published report, is the ultimate way to diversify one's holdings. The report, which took quite a bit of research to build, focused on those in the United Kingdom who are using precious metals investments to diversify, but its message is relevant at the global level. The period of time the research is drawn from covers a quarter century and shows that regardless of the style of investing used, gold diversifies better and more efficiently than anything else that could be in a portfolio.
Having around 10% of one's wealth in the yellow metal can be an effective strategy for diversifying. Many gold investors hold an even higher percentage than this. The results end up being that expected losses can be reduced while the overall portfolio itself is made more efficient through the lessening of the need for risk adjustment on returns. Buying gold means that an investor holds a commodity that has proven historically to provide stable returns and to counteract the losses experienced due to the volatility of currencies, stocks, bonds, and similar holdings. In short, with precious metals investments, economic turmoil is not as damaging as it is to stock investments.
The WGC specifically stated that "During most market crises over the last 25 years, gold has consistently increased portfolio gains or reduced its losses."
Risk tolerances vary from one investor to the next, generally based on their investment philosophy as well as how much they have to invest. Gold investors with more money to invest typically have larger portfolios of investments beyond just precious metals and therefore have more risks they need to offset. The beauty of the precious metals market overall is that it remains relatively small since many investors are more educated on stocks and bonds than they are on gold, silver or platinum. This is an advantage, but the benefits of holding precious metals go even further.
Gold acts as a form of bank account that does not come with the risks that the average bank account comes with. Since we cannot predict the future of the markets, having this kind of diversification is essential to the wise investor who understands that powerfully negative market events can and do occur. In recent times, these events have been global in scope and devastating to those who have not prepared their portfolios for those possibilities well in advance.
Even safety in cash holdings is being questioned today, especially in the UK and for countries on the euro where things are quite volatile. The issues that affect printed money do not affect gold investments; this is a very powerful benefit worth keeping in mind.
In the end, investors can never predict the future, but they can always plan to keep things as stable as possible through intelligent diversification of their portfolios.