Do you want to diversify your investment portfolio? Putting your money in gold can be a safe bet. Gold is an asset that can come in handy for investors during market slowdown or economic uncertainty. However, there are certain risks associated with it.
Many investors are still in two minds when it comes to investing in gold, especially if they don’t have it in a physical form. On top of that, several investors in Malaysia have been duped in gold related scams.
However, gold is still one of those few valued assets that has held its ground as a safe haven for investors.
So, is it worthy to invest in gold or is it unpredictable enough to put your wealth at risk?
5 Reasons to invest in gold
1. Serves as hedge
Gold serves as an excellent hedge against inflation and currency risk. One primary reason for this is that gold prices usually shoot up whenever cost of living increases. So, during times of inflation, gold prices might soar high, thereby benefiting you in the process.
2. It is a direct investment
The value of gold is directly related to world market prices. Gold prices will take a hit only if the world market witnesses a slowdown. So, you are affected only when there’s a crisis in gold prices in the global market.
3. It can be a major source of positive return
Investors usually depend on gold in times of market crisis – when there’s a case of inflation or when the stock market crashes. However, good economic growth has a positive impact on gold, specifically when it comes to consumer demand. Almost all the time, gold has delivered positive returns in the long run compared to other major assets.
4. Diversify investment portfolio
To diversify your portfolio, you need to find investments that are not directly correlated to each other. History beckons that gold and stock usually shares an inversely proportional relationship. Whenever the stock market tumbles, the gold prices go up. Investors, in order to maintain this diversification, combine gold with stocks. This helps them reduce market risks.
5. Gold is a safe mode of investment
Gold protects investors from a possible economic breakdown. During the 2008 financial crisis, many investors invested in gold. Even during the Eurozone crisis in 2011, gold prices were soaring high. Many investors protected their interests during a possible U.S. market collapse by investing in gold.
Disadvantages associated with investing in gold
- Gold prices can change overnight; it’s that unpredictable.
- It doesn’t pay dividends or interests.
- There are additional costs involved, including insurance fees and storage costs, if you want to buy and keep gold in its physical form.
- It can be a bit of hassle to store gold in your house.
- There are quite a few schemers in the market, who introduce exciting gold schemes as a bait to lure customers.
- Gold related investments through banks are not protected by Perbadanan Insurans Deposit Malaysia (PIDM). So, you will lose your entire investment in case the bank collapses.
The bottom line
Time and again, gold has proved to be a valuable asset for investors. Its stable valuation over the years makes it one of the safest modes of investment.
Malaysians are getting more aware about the positive impact gold can have in their investment portfolio. Many Malaysian banks, including CIMB Maybank, Public Bank, and UOB, have added gold accounts to their portfolio. In times of global crisis, gold can turn out to be a valuable asset, surpassing cash in many ways.
However, it’s advised not to treat gold as the only source of investment as the risks are quite heavy. But you can always combine gold with stocks and other investment vehicles to make it a risk-free, worthy investment.