With gold at a record high, I asked a financial planner what I should know before investing in gold

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• Although numerous people purchase gold as protection against inflation, financial planner Jake Skelhorn informed me that this strategy can be quite hazardous.
• Alternatively, purchasing gold makes sense as part of diversifying your investment portfolio—gold IRAs being particularly effective for this purpose.
• Before purchasing gold, he advised me to take into account all additional expenses I could encounter.

My husband and I have always kept our finances and investments separate. But recently, we have started to commingle some of our money and work together on joint goals. Last year, we opened up a joint bank account and credit card to fund our family expenses.

This year, we're strategizing a few ways we can invest our cash together to diversify our portfolios. Now that the price of gold is at an all-time peak, something we have been considering is the possibility of investing in gold bars .

A number of our acquaintances recently purchased gold bars as part of their effort to diversify their investment portfolios, prompting us to consult a certified financial advisor. Jake Skelhorn to learn more.

1. It could potentially not be the most suitable choice during times of inflation.

When I asked Skelhorn why people buy gold bars, he said the most common reason is that they want to use them to hedge inflation .

"When the market gets rocky, people try to seek something that seems safer or keeps them away from inflation," he said. "But investing in gold isn't always the best way to fight off inflation."

This is due to Skelhorn noting that the cost of gold can vary significantly. Despite an uptick in gold demand during times of economic instability, the real pricing of gold isn’t linked to inflation; rather, it’s determined by supply and demand dynamics.

If protecting your funds from inflation is your aim, Skelhorn suggests adopting a long-term approach that includes investing in government securities. bonds or the stock market.

2. The tax rate for gold is higher.

Skelhorn highlighted that the tax rate for gold is higher compared to regular investments.

He mentioned that capital gains from gold holdings exceeding one year attract a tax rate of 28%. In contrast, other types of assets such as stocks or real estate may face tax rates ranging from 0% to 20%, based on your overall annual income.

But if you're looking to invest in a tax-friendly investment vehicle, Skelhorn mentioned it's possible to instead invest in a gold IRA .

"That way, you don't have to pay any capital gain tax when you buy or sell the funds inside the IRA," he said.

3. Investing in gold does not generate any income.

Skelhorn also pointed out to me that purchasing gold won't generate an income for me.

He mentioned that unlike stocks or bonds, which can generate interest or dividend income, purchasing gold bars doesn’t provide any revenue since they merely sit idle.

Skelhorn added that the only way to make money from gold bars is by selling them for more than you bought them.

4. Investing in gold can diversify your portfolio

Skelhorn did confirm that investing in gold could be a good way to diversify my portfolio.

He mentioned that gold does not have a correlation with other types of assets such as stocks or bonds. Therefore, if the stock market declines, it doesn’t necessarily imply that the value of gold will fall alongside it.

He mentioned that prior to purchasing gold bars, we must recognize that additional fees might apply based on our chosen method of purchase and storage.

Regardless of whether you're establishing a Gold IRA or purchasing tangible gold to broaden your investment portfolio, Goldco Can assist you in smoothly guiding you through the process. Order your complimentary kit right now or read our Goldco review for more information.

This article was originally published in July 2024.

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