Smarter Ways to Fit Gold into Your Investment Portfolio

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What's the perfect portfolio? Maybe there's no such thing as perfection, but there are a few simple investment rules you can follow to make sure you have diverse but practical investments:

1. Don't put all your eggs in one basket. You need diversification.

2. Don't buy more investments than you can count on one hand. That's a sign you're getting lured in by "next big thing" investments and shiny new financial products.

3. Understand what you're invested in. If you can't explain it to your friends, you don't know what you have, and you don't understand whether it's a good investment or not.

4. Adjust your portfolio. The market is always changing. A diverse portfolio will have elements that start to outweigh each other. You should sell off those investments that do well and rebalance to prevent overexposure.

5. Own alternatives. Alternative assets like real estate and gold are an essential part of any investment basket. Since investment real estate is really another echelon of investment (for those with much higher net worth), let's look at gold.

Benefits of Gold

There are several important reasons investors like gold:

• Gold prices don't do what the stock market is doing. In fact, they usually do the opposite, benefiting from a stock market that's on the way down.

• Gold prices perform better than inflation. Year-to-year that may not always be true (i.e., when prices are down year-over-year), but long term, precious metals are reliable inflation hedges. Almost as liquid as cash, it's a way of setting your money aside in something as safe as a savings account but better.

• Gold has low counter-party risk, especially if you purchase it in bullion and control ownership yourself.

Read on to find out how to buy gold as an investment and which ways will best protect your money in the coming years.

How to Invest in Gold Quickly

It's fairly simple to acquire gold as an investment, but there are a couple popular ways to go about it.

1. Buy Gold Bullion

This is where you invest in gold by buying coins and bars. You can find bullion dealers online who sell them at low premiums. If you're new to bullion, stick to mint-made coins or bars.

As mentioned above, bullion has the lowest counter-party risk of any other investment form. Counter-party risk is the risk that the other party will default on their obligations or fail their responsibilities. That includes executive mismanagement, misrepresenting how much gold an ETF actually owns, or failure to deliver. 

2. Exchange Traded Funds (ETFs)

A bit more arcane than buying the hard asset version, but it's more comfortable to some who like all their investments to just be paper (or digital). With an ETF, you actually invest in a company that owns gold itself.

3. Mining Stocks

This is not really the same as owning gold, and exposes you to many more risks than owning the metal itself. That's because you're not just investing in the fate of gold prices, you're putting your faith in corporate management.

It's a fairly simple affair including gold in your portfolio. Make sure you're diversified enough to weather changing markets.