Is Gold a Good Investment?

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Hey Taylor: Can you explain the whole investing-in-gold thing? So many people have told me I need to buy gold but no one has told me why. What's the real incentive there? - Mitch

Hey Mitch: I'd be happy to fill you in on how this works. I think buying gold and other precious metals is a smart way to put your money to work, provided you know what you're doing.

Investing in gold can be as simple as buying the physical metal and storing it in your closet, or as complicated as having shares in different gold-related companies. How you buy into this commodity depends on how much you have to invest and how much risk you're comfortable taking on. Owning gold bullion is the simplest option, but there are a few ways to go about it.

Before I get to the "how" portion, here's a little info as to why gold is a good investment. First and foremost, it preserves its wealth extremely well. People have been using it as a currency since the dawn of time, and it's held strong throughout. Gold also resists the inflation that kills paper currencies. While an ounce of gold was worth about $35 in the 1970s, it's now worth more than $1,200. Meanwhile, if you have $35 in cash that you've been holding onto since General Ford was in office, that's worth... $35.

That, in short, is why you see so many pawnshops and other small vendors advertising that they buy and sell gold. However, there are other options for anyone who doesn't feel comfortable keeping such a valuable commodity stashed away in their home. The most popular choice is probably gold exchange-traded funds, or ETFs. Essentially, this method allows you to own shares that are physically backed by the material you're buying; one share is usually equal to one-tenth of an ounce of gold. Buying these ETFs turns you into a proud gold owner who doesn't have to bury gold bricks in the backyard.

Another way that some people buy into gold is by investing in actual gold-mining companies. While this is still effectively a gold investment, it's a riskier one that requires a lot of extra research. Blindly buying shares in mining companies isn't a smart practice.

I believe investing in precious metals is a great way to diversify. You shouldn't turn all your holdings into shares of gold, but it's worth diverting a portion of your funds to this market. If you decide to go this route, make sure you buy from a credible source. As long as you're getting a fair deal on a good product, you should be able to grow your wealth. Go for gold!