A 5-Year Guide to Adding Gold to Your Retirement Portfolio
Young investors may not think about buying gold, but the asset can be an important part of your portfolio as you approach retirement. Gold provides a hedge against inflation and has long been considered a safe haven when global uncertainty roils markets.
Although gold offers you benefits that you cannot get in the stock market, that does not mean that you should forcefully sell assets and put all that money into gold. But it does mean that you can consider gradually accumulating gold to help diversify your portfolio. This five-year guide can help you build your gold the right way.
Learn about investing in gold
In your first year, learn about gold as an asset and the different ways you can invest in gold. The value of gold can be volatile and does not always go up, but it can serve as an important part of your portfolio that can reduce losses when the stock market goes down.
While physical gold is an option, it’s often easier to buy gold exchange-traded funds (ETFs). These funds track gold prices and can provide the same leverage as physical gold – but you don’t have to worry about storing physical gold or insuring your precious metals when you buy shares of ETFs. Gold ETFs are also more affordable and more liquid than physical gold.
Learning about gold will make you feel more confident about investing in this asset. Without high confidence in your investment, it is easy to sell during market corrections or during cycles when the stock market is mixed with gold staying low or falling.
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Start with a small investment
In five years, it is better to invest small amounts in increments instead of making a dramatic move. Investing $100 in gold each month, for example, is a dollar-cost balancing method that can grow your portfolio over time. Just keep in mind that your actual position may be overvalued if gold continues to rally as you buy.
Balancing the cost of the dollar may be easier with a gold ETF such as the SPDR Gold Trust (GLD) or the iShares Gold Trust (IAU). Both funds act as gold trusts with low expense ratios and high liquidity.
Investors can gradually increase their monthly gold investment as they feel more confident about the asset, and if they add more gold that matches their long-term financial goals. It’s a good rule of thumb to aim for an allocation of no more than 5% to 10% gold in your portfolio, but you don’t have to rush to that benchmark. Investing $100 a month and gradually growing that amount over five years can help you reach an allotment of gold by the time you retire.
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Measure regularly
Investors who value portfolio diversification rebalance their holdings regularly, such as once a year. They cut some of their best-performing assets and used the funds to buy dips in some of the underperforming options with strong fundamentals. This type of rebalancing gives investors the opportunity to buy more gold if it takes up just a small amount of their portfolio.
Rebalancing helps ensure you’re not taking too much risk, and always takes into account your time horizon, financial goals and risk tolerance. It’s good practice to rebalance your portfolio a little on a yearly or yearly basis, even if you’re not interested in buying gold.
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Adjust your strategy as needed
Investment strategies are not meant to be put down. You should change your portfolio and adjust your long-term goals based on how your needs change. For example, younger investors may be more risk-averse as their portfolios have time to recover from market downturns, but those individuals tend to be more cautious as retirement approaches.
You can monitor your gold each year and check if you are putting the right amount of money into this different asset or if changes are needed. Some investors may believe that $200 per month is the best after reviewing their first year results. Some investors may feel the need to cut their gold after the big rally.
