This week’s question comes from Patricia in New Jersey:
I have money that I want to invest in gold. I want to keep the value of the money and am very afraid of the economic climate. Are gold coins, or gold stocks a good idea?
Many financial planners suggest that a portion of any well-diversified portfolio be compromised of gold or other commodities such as oil. “I wouldn’t allocate more than 5%, maybe 7% or 8% max,” suggests Cathy Pareto, President and Founder of Cathy Pareto and Associates.
When you purchase gold, you have several options. You can purchase it as an exchange traded fund, as mining stocks, as futures, or as bullion.
If you’ve never invested in gold before, Paul Mladjenovic, author of “Precious Metals Investing for Dummies,” suggests starting with bullion (high-quality gold or silver in bar or coin form) such as the American Eagle coins, which are issued by the United States Mint. He warns to steer clear of medallions or commemorative coins. “These are more expensive and have a dealer markup,” says Mladjenovic
Today, more and more investors are looking to gold instead of stocks to provide some financial stability. But before you start plotting where to stash the shiny stuff, you’ll need to consider both the positives and the negatives of investing in gold.
One of the upsides is that as long as you own gold, you own a tangible asset that is desired by others. “If I have a gold coin in my hand, it’s been recognized as having great value for thousands of years, and thousands more to come,” says Mladjenovic. While the value of gold will never be zero, it’s value will fluctuate due to changes in the market. On the downside, if you invest in gold, you won’t be paid any dividends or interest. Additionally, the IRS doesn’t consider gold an investment, which makes it subject to the 15% maximum federal capital gains tax.
Unfortunately, when it comes to investing in this commodity; there really is no one “golden rule” to follow. They key is remembering that gold, like any other investment has its risks. “As with anything, any investment, you ought to be diversified. Everything else has risk, and we can’t forget that, gold has it too,” cautions Pareto.