Gold Investment Tips for Dummies

Gold is the most precious asset class in the world. And any portfolio should have a gold allocation in it. However, there are certain tips that you should know before investing in gold and this article is all about the gold investment tips for people who have never invested in gold and want to start investing in the gold.

Never Invest More than 10% of your Total Portfolio Worth in Gold

Many people ask me that, in the last 5 years the gold has outperformed the equity so should they shift their all of money invested in equity to gold for better returns? Well, No. Doing this will be a fool’s plan. The gold price has appreciated so much because the US government has printed literally trillions of dollars in the economy and this newly printed money has diluted the purchasing power of the existing money and because of this the gold price has driven to sky high. If we see the past 400 years of gold price movements than the gold has just beat the inflation in the long run.

Remember that gold is not for the capital gains. It can just maintain the purchasing power of your money by beating the inflation. But it does not provide any capital gains. So never invest more than 10% of your overall portfolio net worth in gold. For the Capital gains, Equity is the only asset class which provides highest returns in the long run.

Gold has no utility while businesses provide employment and serve the economy

Investing in a gold is a good idea. But always keep in mind that Gold is never superior than businesses and human beings. Of course gold is more valuable than the printed money. Because the more money the governments and central banks around the world print, the more dilution of the purchasing power of the money occurs.

The main limitation of gold is that the gold does not have any utility. While Businesses have utility so Businesses add more value in the life of people than gold. Except jewellery and in some fine machinery, gold has no utility at all. So Why this philosophy is important to understand before investing in gold?

Well, because suppose if you have a gold worth of 1 million dollars and a business worth of 1 million dollars than which is better? Of course, the value of both your business and gold is the same but still the business is more valuable than gold. Because it provides you a steady income, creates the employment in the economy and adds the value in the life of people.

Just tell me that how much time you can live on a gold having worth of 1 million? Not infinitely right? But you can live on your business having the same value for hundreds of years.

When you invest in Equity, you are investing in businesses but when you invest in gold, you are investing in something which has no utility.

Physical Gold Versus Demat (Paper) Gold

There several ways to invest in gold. The commonest ways are physical and demat or Gold ETFs. The advantage of investing in Demat gold is that, you don’t have to worry about its security and wealth tax. Because there is no issue of purity, security and wealth tax in case of demat gold. While in the physical gold, you will have to worry about all the 3 things.

So keep in mind the above 3 facts before investing in gold and you will never fail in gold investing.