Converting Currency to Gold: A Step-by-Step Guide
You don’t need hidden wealth to buy gold. Instead, you can start with cash and gradually build your position over time.
Investing a small amount of money in gold periodically – a strategy called dollar-cost averaging – can add diversification and an inflation hedge to your portfolio. Investors have several ways to buy gold, and your risk tolerance plays an important role in determining how much gold you should own.
1. Choose your gold investment vehicle
Buying gold exchange-traded funds (ETFs) and shares in gold mining companies are two easy ways to gain exposure to gold and other precious metals. These assets are liquid and usually come with low cost ratios. And they don’t require you to consider storage or insurance costs.
However, you can also buy physical gold. You can store gold in your home, or in a bank safe deposit box for added security. Physical gold is less liquid, and you will need to consider storage, insurance and other potential fees.
Gold retirement accounts (IRAs) are an option if you’re looking to keep your gold in a tax-deductible account. These IRAs allow you to accumulate physical gold while enjoying tax benefits, but the custodian manages the gold for you. Do your research: They come with IRS rules, including that you can’t keep gold in your home.
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2. Find a cheap ramp
Investing in gold can come with costs, so it’s important to look for the most cost-effective option. Buying shares or fractional shares of gold ETFs is a good way to start.
You can invest in these funds through brokerage accounts when you buy stocks, bonds and other assets.
3. Get used to it
A strong investment creates a strong ripple over time. Automatic, recurring investments in gold each month can help investors build their positions over time without dramatic moves.
Investors can use a dollar cost balancing strategy to capitalize on any dip. Low gold prices allow them to buy more assets for the same amount of money, while gold rallies increase the value of their existing assets.
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4. Monitor and review annually
The last step for investors looking to increase their gold is to track and review their progress each year. Investors should monitor how much gold is in their portfolio as a percentage. For example, if you own $10,000 worth of gold and have a $100,000 portfolio, you have a 10% gold concentration.
Most experts recommend no more than 5-10% of your holdings in gold, so rebalancing is usually a good idea if your gold position exceeds 10% of your total portfolio holdings.
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You don’t have to get to that 5% figure right away. Some investors gradually accumulate gold while keeping the rest of their portfolio intact, while others choose to sell rallying stocks and invest in precious metals.
It’s important to evaluate your risk tolerance and financial goals when deciding how much gold makes sense for you. Investors with a high risk tolerance can still benefit from gold, but these people tend to gravitate towards high-growth stocks and funds.
