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- While many people are buying gold as a hedge against inflation, CFP’s Jake Skelhorn told me that’s a risky move.
- Instead, buying gold as a way to diversify your investments makes sense — and a gold IRA works just fine.
- He told me to consider all other costs that may occur before purchasing gold.
My husband and I have always kept our money and investments separate. But recently, we’ve started blending our finances a bit and working together toward common goals. Last year, we opened a joint bank account and credit card to cover our family’s living expenses.
This year we are strategically looking at several ways to invest our cash together to diversify our portfolio, and one of the things we are discussing is the option of investing in gold bars.
A few of our friends recently purchased gold bars to diversify their investment portfolios, and since we were curious about this, we decided to speak with Certified Financial Planner Jake Skelhorn to find out more.
1. It may not be the best option for fighting inflation
When I asked Skelhorn why people buy gold bars, he said the most common reason is to use them as a hedge against inflation.
“When markets are unstable, people tend to look for things that seem safer and are further away from inflation,” he said. “But investing in gold isn’t always the best way to hedge against inflation.”
Skelhorn said gold prices can fluctuate rapidly, and while demand for gold increases during times of economic uncertainty, the actual price of gold is driven by supply and demand, not inflation.
If you want to protect your money against inflation, Skelhorn recommends a long-term strategy using government bonds and the stock market.
2. Gold is taxed at a high rate
Skelhorn emphasized that gold is taxed at a higher rate than regular investments.
“If you hold gold for more than a year, the capital gains tax is 28%,” he said. “Other assets such as stocks and real estate can be taxed at rates between 0% and 20% depending on your total income for the year.”
But if you’re looking to invest in a tax-free investment vehicle, you could invest in a gold IRA instead, Skelhorn says.
“That way, you won’t have to pay capital gains taxes when you buy or sell the funds in your IRA,” he said.
3. Gold investments do not generate income
Another factor Skelhorn advised me to consider is that buying gold doesn’t provide you with an income.
“Compared to stocks and bonds, which can provide interest or dividends, when you buy gold bars you’re just holding them and there’s no income,” he said.
Skelhorn added that the only way to make money on gold bars is to sell them for more than you bought them for.
4. Investing in gold can diversify your portfolio
Skelhorn confirmed that investing in gold can be a good way to diversify a portfolio.
“Gold is not correlated with the stock market or other asset classes such as bonds,” he said, “so if the stock market falls, the price of gold does not fall with it.”
But before buying gold bars, people should understand that there could be additional fees depending on how they buy and store them, he said.
