Imagine a tennis court.Now, imagine a cube with sides that are slightly shorter than the length of a tennis court. No, this isn’t some sort of New Age meditation. This is, in fact, a way to visualize all the gold that has ever been mined since the beginning of time.Most people are shocked to discover the relatively small amount of gold that exists above ground. Indeed, if all that gold was evenly divided between each person on Earth, each individual would only be entitled to a mere 23 grams.Let’s examine some of the best reasons to purchase this rare chemical element that has captivated humans for thousands of years.
The Economy Hedge
You don’t need to be a financial expert to know that we are currently at the brink of a recession that is bringing the world to its knees. The U.S. debt-ceiling debacle led to the country’s first-ever credit downgrade, while smaller countries like Greece have found their debt so unmanageable that their economy is about to enter the Death Star. Gold is known for being relatively dependable in the darkest of times, with the price of gold still up over 30% in 2011 despite the recent pullback. The S&P 500 meanwhile, is down about 10% and the US dollar continues to be weak.
Reduce Volatility & Protect From Inflation
Financial pundits advise strengthening and stabilizing your portfolio with gold due to its ability to withstand inflation and times of uncertainty. Indeed, in the years since World War II (when inflation has affected the U.S. most severely), the price of gold has risen. Thus, the decision to buy gold can be viewed as something of a shield to protect oneself against the ever-weakening dollar, as well as unforeseen economic crises.
There are a plethora of avenues available for those looking to buy gold, so tailor your purchase to suit your specific needs and comfort level. Purchasing physical gold is of course a time-honored option, while others prefer to invest in gold ETFs such as GLD, gold mining companies or gold mutual funds to avoid the logistics of storing, moving, insuring, etc. There are possibilities for all budgets and levels of financial expertise.
Personally, I find that simply buying GLD and some bling bling rare gold watches are the easiest methods, and the most fun.
Buffering Your Future
You could even consider an IRA backed by gold. Gold IRAs are relatively new, as they only became possible after the Taxpayer Relief Act was passed in 1997. The Act provided a superb option for those looking to reduce the volatility of their portfolio. Indeed, an investment of $12,500 in gold coins 30 years ago would have resulted in a current net worth of approximately $250,000!
Slow Production + High Demand = Higher Gold Price
Production growth is slow and can’t keep up with demand. Gold production increased at the rate of 1.9 percent for the first 90 years of the 20th century, while in the past 20 years, it has grown at a mere 0.7 percent per year. Meanwhile, demand continues to grow worldwide, especially in China and India. Did you know that in Vietnam, gold is their asset class of choice?
With gold’s history of counter-cyclicality coupled with strength during uncertain times, the choice to buy gold has become extremely compelling. The price of gold has come off 12% from its $1,800/oz high, and perhaps you could start owning a tiny piece of that golden, tennis court-sized cube.Performance Of Gold ETF: GLD
RECOMMENDATIONS TO BUILD WEALTH
* Manage Your Finances In One Place: The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also recently launched the best Retirement Planning Calculator around, using your real data to run thousands of algorithms to see what your probability is for retirement success. Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner. There’s no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?
* Invest Your Money Efficiently: Betterment, the leading digital wealth advisor, is an excellent choice for those who want the lowest fees and can’t be bothered with actively managing their money themselves once they’ve gone through the discovery process. All you’ll be responsible for is methodically contributing to your investment account over time to build wealth.
In the long run, it is very hard to outperform any index, therefore, the key is to pay the lowest fees possible while being invested in the market.
About the Author: Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $250,000 a year in passive income. He is aggressively investing in real estate crowdfunding to arbitrage low valuations and take advantage of positive demographic trends away from expensive coastal cities.Updated for 2021 and beyond.