Why Invest In Gold Stocks?

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Many people turn to investing in gold when times are uncertain and have done so throughout history. Gold bars and coins could always be transported and used when times were difficult and currency and the stock market were in trouble.

Nowadays, we do not need to physically own gold bars as there are other ways of investing in gold. Investing in gold stocks is a simple way to gain the benefit of surges in the price of this precious metal. In fact many savvy investors are adding a healthy 15 percent to their investment portfolio.


Invest in Gold Stocks

For example between 1971 and 2011 the S&P 500 averaged 9.69 percent return per year. If, however, the portfolio had contained 85% of U.S. stocks and 15% gold equities, the result would have been a further 0.82 percent annually. To put this in context, a $100 investment in gold stocks over that period would have yielded $5,100. That $100 invested in the S&P 500 Index would have yielded roughly $4,800. This is food for thought. To go back to the original theory with 85% U.S. stocks in S&P 500 and 15% gold stocks, that same $100 would be worth around $6,600. This amount is 37 percent more than the original $4,800 if only the S&P 500 was used and with no negligible risk factor.

Of course, you can chop and change your percentage of gold and S&P 500 allocation in your portfolio but the truth is that historically adding a percentage of gold to a portfolio will give increased returns but without any additional volatility, and that has remained constant throughout the last forty years!

The US dollar has been declining over the past years and it is no wonder that a smart investor will consider gold because when the dollar falls, the cost of gold usually rises. The thing is that while the dollar has no longer been backed by gold since 1973, its value has consistently fallen. Gold, on the other hand, has real value and always has done and always will. The U.S. is now a nation of extraordinary debt and the Federal Reserve simply prints more money to assuage this debt, which in turn is making the dollar worthless.

In view of the above, buying gold stocks simply makes sense. Gold rises and falls and it is just a case of waiting for the next plunge in value to invest in some gold stocks to add to your portfolio.

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