The Money Map '"50-40-10" approach to investing lends itself to stability in the face of market volatility, but there's one more way to protect your money that I want to look at today.
I'm talking about gold.
You need to have gold - in some form - in your portfolio. It's no longer an optional investment.
So today, I want to make sure you know how to buy it and show you a simple test to determine if you own enough gold. Most investors could double their holdings and still not have enough.
But before we get to that, let's talk about gold itself, so you can place what I'm about to share with you in context.
Here's the deal...
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The Real Reason Why You Should Own Gold
Contrary to what you may hear in those late night television commercials, gold has never been proven to be an inflation hedge. That's not why you want to own it.
You see, while gold is not correlated to inflation, there's a direct link between gold and interest rates which are, in turn, driven by inflationary pressures and global risk, especially lately. And there's no doubt you want to have at least some physical gold on hand in the event of a market meltdown or natural disaster. It's real money (and always will be).
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Some experts recommend having 10% of your assets in precious metals - and as much as 30% in a crisis.
We're not far off here at the Money Map Report, but I'd take it one step further.
Studies show that owning $1 of gold for every $10 you have in bonds is the best way to hedge your risk in today's volatile global markets.
In practical terms, let's say you have $10,000 in bonds. Using the 1:10 ratio, that would mean you'd also have $1,000 in gold socked away using exchange-traded funds (ETFs), bullion, or something like the very popular Perth Mint Certificates (details below).
Gold prices are obviously getting fairly volatile these days, so you don't just want to set it and forget it. "Buy and hope" isn't a viable investment strategy with precious metals any more than it is with stocks. My suggestion is to rebalance the gold/bond relationship at least annually.
Pick a day, like your birthday or the start of the New Year, and lock it into your calendar so you don't forget. Rebalancing should take you all of 20 minutes.
There's a lot of debate about which forms of gold are best for investors. That comes down to personal preference. You may like ETFs, coins, bars, or even jewelry. You just have to own it.
Now let's get into the different types.
Physical Gold
American Eagles: These coins are the most trusted form of physical gold products on the market. They offer a convenient and cost-effective way to add physical gold to your portfolio in several denominations of your choosing: 1/10th-oz., 1/4-oz., 1/2-oz., or full one-oz. coins.
American Buffalos: These one-oz., 24-karat coins provide a simple way for investors to own gold bullion that's also a form of legal tender ($50 coins). Investors will pay a small premium to cover coining and distribution costs associated with this newer asset class (since 2006).
Investors can purchase coins directly from the U.S. Mint or privately owned specialty mints, such as the Franklin Mint and the Bradford Exchange, which produce specially designed commemorative and collectible coins. However, these generally have high markups over the "spot" price of gold and silver. What's more, there's very little of an aftermarket, and - in many cases - the actual bullion content of the coins isn't great enough to make them a true investment.
Instead, find an established dealer with a strong reputation who is shopping around for a low premium over spot. Here are five I recommend you consider.
- Asset Strategies International Inc. (assetstrategies.com) - Located in Rockville, Md., ASI also offers gold storage options outside U.S. borders. It has an excellent reputation and decades of experience.
- Kitco Inc. (kitco.com) - With offices in New York, Montreal, and Hong Kong, Kitco offers fair premiums, and its selection is usually quite good.
- David Hall Rare Coins (davidhall.com) - In business since 1977, DHRC deals in gem-quality coins, including gold rarities. It can help build collections that take you beyond hedging, too.
- Camino Coin Co. (caminocompany.com) - Based in Burlingame, Calif., Camino has been in business for more than a century.
- American Precious Metals Exchange (apmex.com) - Based in Oklahoma City, Okla., APMEX carries a wide range of pre-1933 classic U.S. gold coins.
Exchange-Traded Vehicles
Merk Gold Trust ETV (NYSE Arca: OUNZ) is one of a small handful of gold ETFs that allows investors the opportunity to turn in their shares for the delivery of actual physical gold bullion, like bars and coins.
Should investors want to take physical delivery of gold tied to the ETF, they can redeem it in the form of London bars. Smaller amounts can be redeemed, too: one-oz. American Gold Eagles or American Gold Buffalos, Australian bars (either one oz. or 10 oz.), Australian Gold Kangaroo coins, or Canadian Gold Maple Leaf coins.
SPDR Gold Shares (NYSE Arca: GLD) is an ETF that seeks to replicate the price of gold. I like it because it's highly liquid. But this is not physical gold, and you cannot take delivery. If you don't want to own physical gold or can't, in these cases, it makes perfect sense.
Market Vectors Gold Miners ETF (NYSE Arca: GDX) is an ETF that holds a basket of the world's largest gold mining stocks. Many of these companies are phenomenally cheap right now, but owning an individual gold miner is very risky - it's a cash-intensive operation that relies somewhat on luck. With this ETF, you diversify your risk across all 100 of the holdings. It also pays a small dividend.
In closing, let me offer a thought.
As with any long-term investment, but especially those that are intended to hedge other investments, consider dollar-cost averaging into your position- meaning you split your capital into chunks and buy equally over time.
That way you're going to capture the best of today's volatile gold prices without inadvertently concentrating your risk. And, at the same time, you'll be positioned ahead of time when gold comes into its own again.
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About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.