Good question! This is one of the main queries that even the most knowledgeable of gold investors like to debate about: the ideal gold allocation in a portfolio. The answer is that it depends (surprise, surprise), and experts will recommend different amounts depending on who you ask. There are three main issues your gold allocation depends on: your goals, the current market and the size of your portfolio.
Gold is an asset that acts as a safe haven, an insurance against a catastrophe. Some people buy and sell gold to make a profit, while others like to keep it as a long term investment. These are two different goals, and it’s helpful to know which camp you’re in. To figure out what your gold goals are, here are a few questions you can ask yourself:Are you investing in the long term or short term? When are you planning to sell?Do you want to protect against a crisis? Or to save for a rainy day?Are you trying to diversify against other assets?
If you’re like most people, you are likely buying gold to diversify your portfolio and would like to invest in the long term in order to protect your money against market crashes and recessions. If that’s the case, then a portfolio allocation of between 5% and 10% is usually a good bet. However, there are other aspects that you should also take into account…
What’s great about portfolio allocation is that you can adjust your percentages easily according to market conditions. This is important because gold performs differently depending on the situation of the market. During a crisis, for example, gold tends to outperform other asset classes. In 2020, the Covid-19 pandemic caused gold to increase to the highest level seen in history: $2,000 per troy ounce. As we can see below, gold tends to increase after a crisis, such as the Great Depression in 1920 and the 2008 market crash.
This is all to say that during a market crash, your gold acts not just as insurance but also as a way to maintain the value of your portfolio and even turn you a profit. While stocks and bonds are crashing down, your gold is increasing: this allows you to minimise losses and even grow your portfolio.
At the current time of writing (January 2021), the Covid-19 crisis is still unfolding and governments are printing money at rates that have never been seen before – this may be a good time to increase your gold portfolio allocation to 15% or even 20%. During a bull run and less volatile market conditions, you can lower your gold allocation to 5% so you have more exposure to assets that are increasing in value, such as stocks. But there’s a final question you should ask yourself.
How much are you already investing? This question is important because the size of your current portfolio will tell you what is a lot and what is not. Think about it: if you have a relatively small portfolio of £1,000, 5% of that in gold (£50) won’t make much of a difference to your investments. You’re actually likely to be losing more money than you’re making, especially if you are paying high fees to your gold dealer and you’re in the middle of a crisis. If you’ve got a very small portfolio, you may want to increase your gold allocation to 20% (£200).
However, this is not true if you are very new to the investing world and are still getting used to the idea of buying gold. If that’s the case, then your best bet is to start small and not focus too much on portfolio allocations. At Minted, we allow investors to start with as little as £30, no contract needed and no insurance or storage fees for the first 12 months. As a beginner, £30 is a good amount to get started with and will allow you to feel more confident about future investments.
If you’re looking for a rule of thumb and don’t want to do too much research, a good gold allocation to start with is 5% of your portfolio. That’s enough for you to get a taste of gold investing and to hold some of it as part of your investments. It may not make much of a difference to your overall position, but it means you won’t be forced to do something you’re not prepared for. Once you’re comfortable with your investments, you can increase your allocation and buy more gold.
At Minted, we wanted to make buying gold accessible to everyone. Too often, gold dealers force investors to commit to a contract, make minimum contributions and pay huge fees. Here, we do things differently. The steps are simple:Create a free Minted account and verify your identity.Choose whether to buy gold monthly or one-off.Purchase the amount of gold you want.Get it delivered once you own 10 grams of gold.Sell gold whenever you want, and we’ll buy it at better rates than the high street.
With Minted, you won’t spend hours searching for the exact fees you’ll be paying and you can stop buying gold whenever you want. We also wanted to make sure our Minted users were buying gold at affordable rates, so we have some of the lowest fees on the market. Don’t believe us? Learn how much you save with Minted and how much we charge in fees compared to our competitors:
Hopefully, you are now better equipped to decide how much gold you want to buy. As a beginner, starting with £30 will allow you to feel in control of your money and more confident with future investments. As an advanced investor, look into your own goals, market conditions and total portfolio allocation to determine how much you should be buying. And once you’re ready to get started, come join the community! ????????