How much gold should I have in my portfolio?
Every expert will give you his or her not so humble opinion on how much gold should you own. You will see figures ranging from as little as 2 percent to as much as 50 percent of your entire portfolio. The main point to consider is why are you buying gold. Here are 4 different scenarios,
a) How much gold to buy if you only want to own it as insurance against weak dollar? I would suggest a figure in 10 to 12 percent range. That should be enough for those investors who believe that eventually things will go back close to where they were just few years ago, but still want to make money if gold goes up, and have a bit of an insurance just in case.
b) How much gold should you own if you firmly believe that U.S. dollar will ultimately loose its reserve currency status and/or we will be in economic turmoil because of global competition, weak consumer spending, future deflation/inflation or what have you? Well then, you should put at least 25 to 40 percent of your liquid assets into gold and probably more. With other 10 to 25 percent, you can also venture in other high-value, portable assets like silver, diamonds, guns or ammunition. I am not making fun or ridiculing anyone, on a contrary dishing out a sound advise.
c) How much gold should be in my portfolio if I want to simply profit? Here I would treat gold just as stocks. If your are playing the market, then whatever you can afford to buy, just buy it, based on charts, technical analysis and of course, geopolitical situation.
d) How much gold to buy if you simply like it or collect certain coins? If you enjoy the heaviness and shine of uncirculated gold coins or want to collect every Chinese Panda since the first issued in 1982 or every Canadian Maple Leaf design, then buy them as long as you can afford without going overboard. One coin a month or two, three on the dips, or whatever.
You should always think of what effect gold will have on your finances. Own as much gold as you want, as long as you have enough cash left. Just as you do not spend every penny on the stock market and do not buy ten million dollar life insurance policy, you do not throw everything in gold only because everyone tells you to.
One thing is for sure, gold will always be worth something. You can always leave it to your heirs or a charity. Also, when deciding how much gold to own, do not listen to gold critics who say that gold performance can not be modeled, there are no proven ways to predict with any certainty how much gold will rise or fall next quarter or year. Did they model any stock market crash or the housing bubble?
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