Looks like you have realized that investing in gold is a very smart idea. Next question is how much gold should I own then?
This is very personal and it all depends on what kind of investment strategy you have. But one thing is for certain, every healthy portfolio should have some physical gold.
Most professional investors heavily agree on that but the bigger question, where they all differ, is how much you should own. Before we answer that question I wanted to share with you the thoughts of Jim Cramer.
Jim is a former hedge fund manager and a best-selling author on investing. He is also the host of CNBC’s financial television show “Mad Money”.
Cramer recommends gold because it tends to go up when everything else goes down. It gives investors insurance against geopolitical events, uncertainty and inflation.
“Just as you wouldn’t own a home or car without insurance, you shouldn’t have a portfolio without gold, Cramer said.”
Gold as an insurance
Just like Jim is saying, gold is an insurance to your money. The reason why gold is seen as an insurance is because it is outside of the financial system.
What I mean with that gold is outside of the financial system is that gold is an hard asset. Something that you can hold in your hand that got value. When you are owning stocks and bonds you are basically just owning a piece of paper saying that you own something.
You can’t really feel the value by touching it as you can with hard assets such as gold, silver, real estate or land.
We all remember what happened 2008 right? When the financial system came crashing down over night and where investors lost at least 50% of their money (some of them lost everything). This is how fast you can loose your hard earned money if you have it within the financial system (within banks in stocks, bonds mutual funds etc).
Because gold is outside of the financial system it kept it’s value during the panic of 2008. If you had your money in gold you would not have lost 50% of your money over night.
So look at gold as your insurance that is outside of the financial system. Even if hell breaks loose gold will keep it’s value and you can feel safe that your money won’t disappear over night as stocks and bonds easily can.
Gold has been humans number one asset for almost 5000 years to preserve and increase wealth. For all of this time gold has kept it’s value. It has seen stock market crashes, wars, currency collapses, empires fall and everything else you can think of during the last 5000 years. And still it has kept it’s value. That’s why gold is seen as a safe investment.
Okey, I get it. So how much should I get then?
This is the harder question to answer. Every serious investor agree that a healthy portfolio should have some physical gold as an insurance.
Some people are saying 5% of your money should be in gold, some are saying 20% and some are saying 100%. Which one is it you might ask?
Here is when it comes to what your investment strategy is. Because remember, gold has no yield. This means that by owning gold you will not receive money every quarter like you do with stocks that have dividend.
So gold has no cash flow, you buy it and then you put it away and watch it go up in price.
Most professional investors are saying that you should have between 10-20% of your money in physical gold as an insurance. But this is also very personal. Because gold is an insurance for bad economic times it depends on how bad you think the times ahead will be.
If your like me and don’t believe that the current economic system of debt will last then you should probably own some more. I mean look around the world today. Europe is in big trouble with all the debt they have. The US is 19 trillion dollars in debt and are adding 1 trillion dollar a year.
Do you think this is sustainable or do you think we might see a new economic collapse soon? Just as we did in 2008? I definitely do, which is why I like to own more gold than what the average investor do.
I personally think that in the current economic environment that we’re in you should have at least 20% of your money in physical gold. When I say “your money” I mean the amount of money that you are willing to invest.
Say for example that you are willing to invest/save 10% of your income each month. Then 20% of that 10% should be in physical gold (Hmm, hope that made sense otherwise leave a comment).
Gold will skyrocket within the next few years
Lots of people only say to keep physical gold in your portfolio as a safe haven. I think that is a great advice but it’s not the whole story. Me, and a lot of other people, think that gold has a huge potential to gain value during the next few years.
Have you realized how fast prices are rising today? How much less groceries does $100 get you today compared to 10 years ago? How much more gas did $20 give you 10 years ago compared to today?
I’m pretty sure your answer is: a lot more.
The reason why is because our governments are printing so much extra money today to be able to pay for their bills. By printing all this extra money they are creating inflation that is pushing the prices of the goods and services up.
Let’s take the United States as an example. When I’m writing this the US national debt is around 19.2 TRILLION dollars and it’s rising rapidly. Every year the US adds between 1-2 TRILLION dollars in debt.
So the US (along with almost every country in the world) is bankrupt. If they can’t borrow more money they will not pay back any of the money they already borrowed. Even when they have to pay interest on the national debt, they borrow that as well.
This thought that you can just keep printing more and more money, adding more and more debt is obviously not sustainable. You can’t pay off your MasterCard with your VISA indefinitely.
This has happened multiple times in history and every single time it has ended with the paper currency (the dollar for the US) going to ZERO and gold becoming incredibly valuable in a very short period of time.
I personally think that it’s just a matter of time before that same history repeat’s itself. Check out my long term gold price forecast for a more in depth talk about how high the gold price can go. And the reasons why.
I hope you got a lot of your questions answered with this post, if not please leave a comment below. Or if you have any other input.
How much I should own is a very personal question and it depends on your investment strategy. But most people agree that you should have somewhere around 10-20% of your money in physical gold as an insurance.
Remember that gold won’t give you any yield like stocks with dividends. So it’s not an investment that keep bringing you cash flow.
If you don’t believe that the current economic system is sustainable. That something pretty bad will happen (like a lot of people are starting to say now) there is no reason why you can’t have more than 20% in physical gold.
Remember, physical gold is outside of the financial system. That is what makes it a very safe investment. But because of our current economic system and the problems that we face there is also a huge potential for gold to go up in price very fast.
Last question to you is: Are you going to follow big time investors, like Jim Cramer, and add physical gold to your portfolio?