Whether you're new to investing or looking to add some sparkle to your portfolio, you might be curious about investing in gold. From gold bullion to gold-focused exchange-traded funds, there are an array of options available in today's market.

But we understand that everyone's investing goals and preferences are unique. What might dazzle one person may not offer the same shine for another. That's why we're here to give you a simple and informative overview of gold as an investment option.

Together, we'll break down the complex concepts and mysteries of investing in gold. This way, you can decide if gold investment is a viable investment option for you. So, put on your mining hat and let's dig into the secrets of gold investment!

Why do people usually choose to invest in gold?

When it comes to investing, gold has always held a certain allure for people. But why do investors choose to invest in gold? First of all, gold is considered a store of value. This means that throughout history, gold has retained its worth and purchasing power. Even when economies face challenges or currencies fluctuate, gold has maintained its shine. This stability has made it attractive to investors.

What are some benefits of investing in gold?

There are more perceived benefits of investing in this precious metal than what we detailed above. Let's explore what they are!

1. Diversification. Gold can help diversify your investment portfolio. Diversification means spreading your investments across different assets to reduce risk. When you invest in gold, you add an historically valuable and independent asset that often behaves differently from stocks or bonds. So, if other investments are experiencing a downturn, gold may act as a shield, helping to balance out your portfolio.
2. Safe haven. In times of uncertainty or market volatility, investors often turn to gold as a safe-haven asset. Gold has historically acted as a buffer during economic crises or geopolitical tensions. When other investments are facing turbulence, gold has often provided stability and protected investor wealth.
   And speaking of reliability, gold is a precious metal recognised worldwide. So, whether you're in Australia or on the other side of the world, gold is like a universal language of wealth.
3. Hedge against inflation. Inflation refers to the rising prices of goods and services over time. When inflation erodes the purchasing power of traditional currencies, gold has tended to hold its value. By investing in gold, you can potentially preserve your purchasing power and maintain the real worth of your money.
4. Potential for profit. Remember, just because gold has performed well in the past doesn't mean it will definitely do the same in the future. However, it's worth noting that gold has shown the possibility of its value increasing over the long term. When economic conditions are favourable, the demand for gold can increase. This then drives gold prices up. This means that investing in gold may potentially offer capital gains and boost your investment returns.

Investing in gold can offer benefits as explored above. But keep in mind that everyone's financial goals and circumstances are different. So, it's essential to consider your own situation. It also helps to make thorough research before determining your next steps in your investment journey.

What are some of the drawbacks of investing in gold?

Just like any investment, gold has its pros and cons. That's why it's important to be aware of the potential drawbacks. Here are four things to consider when thinking about investing in gold:

1. Lack of income. Stocks or bonds can generate regular income through dividends or interest payments. But gold itself doesn't produce any income. So, if you're seeking a source of ongoing income from your investments, gold may not be the most worthwhile option.
2. Volatility. While gold is often considered a safe haven, gold prices can still experience fluctuations. Its value can go up and down based on various factors such as market conditions, economic indicators, and investor sentiment.
3. Storage and security. Physical gold, like coin or gold bullion, requires proper storage and security. It's like having a valuable treasure that needs protection. To keep your gold safe, there might be additional costs, such as renting a safe deposit box or using a professional vault service. These additional costs ensure that your gold is stored securely. If you're not comfortable with the responsibility of safeguarding physical assets, this could be a drawback.
4. Limited industrial use. Gold is highly valued for its beauty and historical significance. But its practical use in industries can be limited compared to other metals. It's not like a versatile tool that can be used in various applications. This means that the demand for gold may be more influenced by factors like investment demand and jewellery consumption. So, changes in these areas could impact the value of gold.

While investing in gold can be enticing, it's important to consider the potential drawbacks before diving in. The drawbacks explored above may not necessarily make gold a bad investment. But they're aspects to keep in mind when building your investment strategy. With this in mind, take a moment to weigh the pros and cons and do your research to determine if investing in gold is the right move for you.

How can I invest in gold?

You may find investing in gold exciting and rewarding. Although most people know about physical gold, there are still other ways to invest in it. Here's a simple breakdown of some methods to invest in gold:

Buying gold bullion

One way to invest in gold is by purchasing physical gold, in the form of bullion, which are bars or coins made of pure gold. They can be kept at home or be stored in a safe deposit box. By purchasing gold bullion, you have direct ownership and can keep it safe wherever you choose.

Gold exchange-traded funds (ETFs) and mutual funds

Gold exchange traded funds (ETFs) are investment funds that own and track the price of gold. When you invest in a gold ETF, you're buying shares that represent a fraction of the overall gold holdings.

Gold ETFs are bundles of gold investments that you can buy and sell on the stock exchange, just like you would with stocks. It's a convenient way to invest in gold without physically owning it.

On the other hand, gold mutual funds pool money from multiple investors to invest in a variety of gold-related assets. These funds are managed by professional fund managers who make investment decisions on behalf of the investors. By investing in a gold mutual fund, the aim is to benefit from the expertise of the fund manager and gain diversified exposure to the gold market.

ETFs and mutual funds have their own unique features, and it's important to understand which investment is the right choice for you.

Gold mining companies or gold investing companies.

Another way to invest in gold is through gold mining stocks. These are shares of companies involved in gold mining operations or investment. But how do gold mining companies and gold investing companies differ from one another?

Gold mining companies are the ones that actively find, extract, and produce gold. These companies have teams of geologists, engineers, and gold miners. They work together to find gold-rich areas, set up mining operations, and extract the precious metal from the ground. Gold mining companies take on the physical and operational tasks involved in mining gold.

Gold investing companies, such as SEC , focus on managing gold investment. They are not directly involved in mining gold themselves. However, they specialise in investing in different gold-related assets. These assets may include physical gold, gold mining stock, gold miners ETF, or other forms of gold investments. Gold investing companies like SEC handle the buying, selling, and management of these assets on behalf of investors.

By investing in these stocks, you can potentially benefit from the success of gold mining companies.

Other means of investing in gold — gold savings and purchasing gold jewellery

Another way to invest in gold is through gold savings. Gold savings plans allow you to regularly contribute funds towards the purchase of gold. These plans often provide a systematic approach to investing. Because of this, they allow you to accumulate gold gradually over time. It's like setting up a savings account specifically for investing in gold, helping you reach your gold investment goals step by step.

Some people may also choose to invest in gold by purchasing gold jewellery. While this can be a way to own gold, it's important to note that the value of the jewellery is based certain factors. In addition to the amount of gold it contains, craftsmanship and design also affect a jewellery's value. So, it's essential to consider the market value of the gold when making this type of investment.

While there are multiple ways to invest in gold, each method offers its own advantages and considerations. Whether you prefer one gold investment method over the others, there's a method that suits your investment preferences. It's important to determine your own investment goals before choosing the method that works best for you.

How can gold fit into a core/satellite approach?

A core/satellite approach in investing involves dividing your investment portfolio into two main parts: the core and the satellite.

The core acts as the foundation of your portfolio. A core portfolio is a blend of different low-cost investments that make up the stable and long-term part of your investment strategy. These investments often include broad market index funds or ETFs that cover various sectors or asset classes.

The satellite, on the other hand, represents smaller portions of your portfolio. It focuses on specific investment opportunities or strategies. These investments can be more specialised and have the potential for higher returns, but they can also carry more risk. Satellites can include individual stocks, sector-specific funds, or alternative investments.

A core/satellite approach is a strategy considered by long-term investors use for various reasons. Gold can be considered a satellite investment in this approach. Now, let's see how it can fit into the satellite position of a core/satellite approach in the following ways:

Diversification and risk management

By adding gold to your portfolio, you spread your investment across different types of assets. Gold behaves differently from stocks and bonds, so it can help stabilise your portfolio when the markets go through ups and downs. This means that if one investment isn't doing well, having gold can potentially offset some of the losses and protect your overall wealth.

Protection against inflation

Gold has a history of holding its value over the long term, even when the prices of other things go up due to inflation. Inflation refers to the gradual increase in prices over time, which can reduce the purchasing power of money. By investing in gold, you have a chance to preserve the value of your wealth and potentially counter the effects of inflation.

Seizing unique opportunities

Investing in gold can be helpful during times of economic uncertainty or geopolitical tensions. During such times, investors often turn to gold as a safe harbour to protect their money. As a result, the demand for gold increases, potentially driving up its price. Including gold in your investment strategy allows you to potentially take advantage of these unique market situations and achieve gains.

It's important to remember that the amount of gold you include in your portfolio should be based on your individual goals and risk tolerance. Finding the right balance between your core investments and satellite investments is key to building a diversified and resilient portfolio.

Should I invest in gold? A summary

By now, you should have a better understanding of why people choose to invest in gold and the potential benefits it can offer. We've also discussed some drawbacks to consider. Additionally, we explored different methods of investing in gold and how it can fit into a core/satellite approach.

Whether or not you should invest in gold depends on what you want to achieve with your investments. Everyone's goals and preferences are different, so what works for someone else might not work for you. Our main aim in this article was to give you an overview of gold as an investment option and help you make an informed decision.

Remember, gold can offer unique opportunities during uncertain times. However, it's important to assess your own risk tolerance and investment goals before making any decisions. As you continue your investing journey, keep in mind that gold is just one piece of the puzzle. It's important to have a well-rounded investment strategy that aligns with your goals.

Happy investing!