The key to mitigating risk is diversification – but what sort of assets should smart investors be looking at?
It’s been a tumultuous year for investors. The stock market has taken a hammering, the property market is cooling, and rapidly rising inflation and interest rates are further exacerbating the pain. Seeing your investment portfolio head south is never easy – and 2022 has served as a stark reminder that when it comes to smart investing, nothing beats diversification.
“One of the most important words in anyone’s financial vocabulary is diversification, otherwise known as protecting oneself from the cold winds that can blow through the financial markets,” says Tony Coleman, a highly regarded industry specialist, thought leader and managing director of New Zealand Gold Merchants.
Those winds are certainly blowing a gale right now as stock markets continue to weaken, economies around the world fall into recession, and the likelihood of a global financial crisis grows by the day. Understandably, this has many investors anxious about the status of their portfolios, especially those who saw their assets prosper thanks to the post-2016 stock market bull run. Now, they’re looking for savvy ways to lock in the gains they’ve already made, and reduce the risk of suffering big losses.
The key to mitigating that risk is diversification – but what sort of assets should smart investors be looking at?
One of the hottest trends, cryptocurrency, has piqued the interest of many, but you’ll need a good appetite for risk. While there have been some eye-watering gains, cryptocurrency has also proven to be one of the most volatile assets, and worse still, crypto theft is on the rise.
Gold and silver are excellent options then, especially in the current climate. For those who need convincing, here are the top seven reasons why gold should be part of your portfolio.
#1 – Reduces risk
“Gold behaves predictably in normal market conditions but it protects the downside risk in times of trouble. History shows that gold and silver helped to counteract losses from the huge stock market and property bubbles – a highly similar scenario to what New Zealand and the world is facing right now,” Coleman says.
Even the biggest hedge funds hold gold because it has endured the test of time and they know it will get them out of tough spots.
#2 – Well regulated
Given the long history of gold as a trading commodity, regulation around gold reaches back several hundred years. This means a stable platform for trading gold, without the risks of other forms of investment such as cryptocurrency. And as gold is used all over the world, it means if you decided to pack up and shift your life to another part of the world, you’ll easily find a well-regulated market for investing and trading in gold.
#3 – Historical safety net
While – like everything – the value of precious metals fell in the 2008 financial crash, they quickly recovered and catapulted to record highs.
“In that 2008 crash, even gold fell by about 30% in US dollar terms though it was different in New Zealand – the collapse of the New Zealand dollar kept gold stable here. Then gold rose and rose again to US$1921 in 2011 – a 270% increase from its 2008 low,” Coleman says.
#4 – Easy to trade
While it’s easy to buy physical gold from any jewellery store, it’s always better to buy from a trusted source that can provide guarantee certificates on their product. Regardless, gold is always in demand and there’s no need to worry about liquidating your assets in gold. Whether it’s immediate cash through selling through a trusted gold merchant or pledging them and taking a loan from a banking institution, trading gold as a commodity is a simple process.
#5 – Easy to pass on to the next generation
Physically owning gold in the form bullion, coins, or jewellery means there are no extra steps you have to take with a financial institution to pass on to the kids or grandchildren.
#6 – Low maintenance
It’s gold. Once stored securely in a safe environment like a vault, the only thing you have to remember is where you’ve kept it. There’s no active management required unlike other forms of investment such as stocks or real estate and can simply sit somewhere for hundreds of years.
#7 – Won’t deteriorate over time
According to Coleman, gold should make up 15 – 20% of your investment portfolio, as they are physical objects that can be stored in safe environments, and doesn’t lose value over time.
“Gold and silver are real money, real assets – not some contrived financial manoeuvre – and they come into their own when the going gets tough,” he explains.
There’s a lot to love about the original currency of gold, and Coleman for one is a big fan. He’s been buying, refining and selling gold since 1985, and opened the retail offering in 2006, so he knows what he’s talking about. His team at NZ Gold Merchants have ridden the highs and lows of many economic cycles and they’ve witnessed first-hand the powerful role gold – and other precious metals – can play in wealth protection and growth.
“We never say people should put all their money into gold – but it should be part of your investment portfolio. Financial history proves that gold protects your wealth from big downturns, and we consider it the ultimate insurance in a financial portfolio.”
To find out more about the price of gold, and the ease of buying and selling it, check out the following links: