Why gold still shines in modern portfolios

For centuries, investors have turned to gold as a safe haven during a period of economic turbulence. The precious metal has proven its ability to preserve wealth and enhance portfolio performance. But in the era of cryptocurrencies and tech stocks, some wonder whether gold still has a place in modern portfolios.

While gold is often viewed as an asset for traditional investors, it continues to offer valuable advantages in today’s fast-moving markets. His ability hedge against inflation risk diversification continues to attract experienced and novice investors.

We asked financial experts to share their views on the role of gold in modern portfolios. Their insights may change the way you look at this timeless asset and your investment approach.

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Why gold still shines in modern portfolios

Contrary to what some may believe, gold isn’t just for older investors or the ultra-wealthy – it can fit into almost any portfolio. “People often don’t realize they can buy gold…they assume it’s only available to the rich. (But) everyone can buy gold in affordable chunks,” says Brett Elliott, director of marketing for the American Precious Metals Exchange (APMEX).

This accessibility has kept gold relevant, but its appeal goes beyond what is achievable. The precious metal has consistently served as a store of value throughout financial history, adapting to different economic conditions.

David Weild, chairman and CEO of Weild & Co., notes that “gold-backed bearer bonds” were issued in the mid-1800s. “These were fixed income securities that promised to pay bondholders in gold rather than in currency,” he explained. They became popular when inflation was high – much like how investors use gold today to protect their wealth when economic uncertainty looms.

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Gold: a strategic tool for protection against inflation and diversification of risks

Elliott identifies two key reasons why smart investors today might want to invest some of their portfolios in gold: inflation protection And risk diversification.

Gold tends to only get more expensive over time, as evidenced by its record price rise in 2024 despite concerns about inflation, interest rates and more. This demonstrates gold’s ability to maintain purchasing power over long periods of time, often outpacing inflation.

If you don’t mind the storage aspect and low liquidity, physical gold can provide security in a portfolio. “(It) has zero counterparty risk,” Elliott notes. Unlike many other assets, including government Treasuries, physical gold does not carry the risk of default. As a result, the precious metal often performs better when other assets are stressed, making it an excellent portfolio diversifier.

Popular types of gold for modern investors

Thinking about investing in gold? Perceptible gold coins and bars These aren’t your only options. Below are four other popular ways to add precious metal to your portfolio, each with important features:

• Gold Exchange Traded Funds (ETFs) Monitor gold prices and trade like stocks. They are easy to buy and sell without the need to store physical gold. On the other hand, you are exposed to counterparty risk and may have to pay management costs.
• Gold IRAs retirement accounts that hold gold instead of stocks or bonds. They offer tax benefits for long-term investing, but have special rules and setup fees. Authoritative gold company IRA can help you create and manage these accounts. You can find out more here.
• Shares of gold mining companies offer the opportunity to get high profits by buying shares of gold mining companies. However, company performance adds another layer of complexity as it impacts share prices along with gold prices.
• Gold futures Contracts to buy or sell gold at a set price in the future. They allow for leveraged investing, but are complex and carry high risk.

“My preference is for clients to invest in a gold ETF,” says Laura Casey, managing director of Coastal Wealth Management. She leans toward this type of gold because of the lower fees and better tax management options (compared to mutual funds).

Bottom line

The enduring value of gold in modern portfolios is clear, but it’s how you invest in it that matters. As we have already said, each type of gold investment has its pros and cons. So, before you take any steps, talk to a financial advisor. They can help you determine the best type of gold for your portfolio and its amount. Your advisor can also explain how this may affect your taxes and overall investment strategy.