Investing in gold has picked up steam over the last couple of years. It makes sense: The price of gold increased, and the precious metal can be a good tool for diversifying your portfolio.
Factors that might hurt the stock market don’t always ding gold in the same way. Inflation, for instance, may affect the stock market more significantly than gold. And while geopolitical conflict tends to put stocks in the red, you’ll often see it have the opposite effect on gold.
So, does that mean gold is a good investment right now? Here are three questions to help you decide.
3 questions to help you decide if gold is a good investment right now
Just like with stocks, buying gold when prices are high is risky, because there’s always the chance that its value will decrease. This is the reason many people buy shares of a stock when its value nosedives: They’re betting that it will bounce back.
But whether gold is a good investment right now isn’t just about its price. Like any investment, the right time to invest in gold is highly individual. Trying to buy any investment when prices are low and sell when they rise is called “timing the market,” and is nearly impossible to do effectively (even for the pros).
Instead, most people are better off making investments for the long term — often, until retirement. That long time frame gives your portfolio a chance to weather the market’s regular ups and downs to gain value overall. Gold is no exception to this rule.
When you’re deciding whether gold is a good investment for you right now, don’t spend too much time poring over historical price data. Instead, ask yourself the following questions:
1. Do I already have other investments?
Investing in gold can be a worthwhile tool for diversifying your portfolio, but you probably don’t want it to be the first thing you invest in.
Because the value of stocks has historically grown more quickly than gold, you shouldn’t overlook equity investments as the basis of your portfolio. Investing in gold is often more about preserving wealth than growing it; investors early in their career should set themselves up for growth before strategizing around preservation.
Have you already invested in individual stocks using a traditional or Roth IRA? How about ETFs, mutual funds, or index funds? If available to you, are you contributing to your company’s 401(k), at least up to the organization’s contribution match limit?
These are all important steps to building an investment foundation. It’s typically best to lay the groundwork before branching out into gold.
2. Am I looking for ways to diversify my portfolio?
If you’ve accomplished all of the steps above, you might be ready to move into gold investing.
Diversifying your portfolio means spreading your money across different industries and markets to make sure a drop in one place isn’t a drop everywhere. Like any investment, gold can be volatile, but diversification can provide stability for your portfolio overall.
Gold keeps your investment portfolio diverse because it can react to factors such as inflation and politics differently than the stock and bond markets do.
Other diversification options include real estate, cryptocurrency, or international stocks.
3. Do I understand gold well enough to invest?
You invest in gold the same way you might invest in stocks or any other asset: You buy a certain amount and hope it appreciates in value. There are several ways to invest in gold. Here are your main options:
Gold IRAs
Gold IRAs, also known as precious metal IRAs, can hold physical gold, silver, platinum, and palladium, with contribution limits and distribution requirements just like any other IRA.
These retirement accounts must be opened through a self-directed IRA custodian, typically facilitated by a gold IRA company such as Thor Metals Group, and any metals must be stored in approved facilities. Many standard brokerages or retirement account providers won’t offer this type of investment in precious metals.
Gold ETFs and mutual funds
Gold exchange-traded funds (ETFs) and mutual funds are simpler options for those who are less experienced or don’t have the capital to buy physical gold. They can hold a basket of physical gold and/or mining stocks in one fund, which gives you more diversification than if you just bought one or two gold mining stocks. You can trade in a regular brokerage account.
Gold mining stocks
You can buy shares of stocks in gold mining companies in your regular brokerage account. Not sure what gold mining stocks are out there? Simply Google “gold mining company stocks” to find names, then search for them on Markets Insider, which shows the stock’s price trends and news about the company.
Physical gold
Bulk gold, such as bars and coins, is called “gold bullion,” and you can buy this gold as an investment. As long as it isn’t part of a gold IRA, you can keep gold at home or in a safe deposit box at the bank, but you may prefer to pay a small annual fee for storage and insurance. This way, you don’t have to worry about your gold if you’re robbed or fall victim to a natural disaster.
Gold futures
By investing in gold futures, you agree to buy or sell gold at the set price on a future date. Investing in futures — gold or otherwise — should be reserved for experienced investors who understand this complex concept. You can invest in gold futures with a brokerage account that offers futures trading.
Buying gold isn’t for everyone. Even when it seems like a great time to invest in gold, two people with different portfolios and risk tolerances will make different decisions about whether to buy in. Above all else, understand how gold works and whether it could benefit you before deciding if now is the time to invest.
Created by the Commerce team at Business Insider with Thor Metals Group.