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Why you should insure your portfolio with gold

by , 26 May 2014

Gold is a volatile commodity. After staging a decent run, last year was disastrous. It started 2013 off trading at about $1,650 to end the year down at around $1,200. The volatile movements of the gold price can put many investors off investing in it. But instead of looking to gold as an investment opportunity, look to it as insurance. Let's take a closer look at how to do this…

Use gold to insure yourself against financial disaster

You could think about gold as an insurance policy. You only invest smallish amount. Don’t stake your whole portfolio into the yellow metal!

The idea is to hold gold to insure the rest of your portfolio against financial disaster.

This is a common view of gold in the markets. You’ll notice that when things happen that create uncertainty in the world, the gold price tends to rise.

Just recently, the gold price responded higher because of rising tensions in Ukraine. Think about the rise in the gold price like this: With a higher chance of worse things happening, the price of the insurance policy (the gold price) is more expensive than it was.

How much physical gold should you own?

It’s a good idea to hold between 5% and 10% of your investment portfolio’s value in physical gold.

Don’t count gold shares in with this, John Stepek in Money Week explains. They’re a completely different kettle of fish. A number of factors drives their price, not just the gold price. Gold shares are not insurance against financial disaster.

Make sure you check your portfolio every six months or so and rebalance it if necessary. So if the quota of physical gold in your portfolio is higher than it was, sell some. If it’s less, buy some more.

So there you have it, why you should insure your portfolio with gold.

Why you should insure your portfolio with gold
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