Why gold still shines in modern portfolios

Gold still shines in modern portfolios thanks to a variety of timely reasons. Getty Images

For centuries, investors have turned to gold as a safe haven during economic turbulence. The precious metal has a proven record of preserving wealth and boosting portfolio performance. But in an era of cryptocurrencies and tech stocks, some wonder if gold still has a place in modern portfolios.

While often viewed as an asset for traditional investors, gold continues to offer valuable benefits in today's fast-paced markets. Its ability to hedge against inflation and diversify risk continues to attract seasoned and beginner investors.

We asked financial experts to share their takes on gold's role in contemporary portfolios. Their insights might reshape your view of this timeless asset — and your investment approach.

Start exploring your top gold investing options here.

Why gold still shines in modern portfolios

Contrary to what some might believe, gold isn't just for older investors or the ultra-rich — it can fit into almost any portfolio. "People often don't realize they can buy gold … they assume it's only for the wealthy. [But] anyone can buy gold in affordable increments," says Brett Elliott, director of marketing at American Precious Metals Exchange (APMEX).

This accessibility has kept gold relevant, but its appeal goes beyond being attainable. The precious metal has consistently been a store of value throughout financial history, adapting to various economic conditions.

David Weild, chairman and CEO of Weild & Co. points out that "gold-backed bearer bonds" were being issued in the mid-1800s. "These were fixed-income securities that promised to repay [bondholders] in gold rather than currency," he explained. They became popular when inflation was high — much like how investors use gold today to protect their wealth when economic uncertainty looms.

Add gold to your portfolio today.

Gold: A strategic tool for inflation protection and risk diversification

Elliott highlights two key reasons smart investors might allocate some of their portfolios to gold today: inflation protection and risk diversification.

Gold tends to only rise in price over time, as demonstrated by its record price surge so far in 2024, despite concerns over inflation, interest rates and more. This demonstrates gold's ability to preserve purchasing power over long periods, often outpacing inflation.

If you don't mind the storage aspect and low liquidity, physical gold can offer security in a portfolio. "[It] has zero counterparty risk," Elliott notes. Unlike many other assets, including government treasuries, physical gold doesn't carry the risk of default. As a result, the precious metal often performs better when other assets are under stress — making it a great portfolio diversifier.

Popular gold types for today's investors

Thinking about gold investing? Tangible gold coins and bars aren't your only options. Below are four other popular ways you can add the precious metal to your portfolio, each with crucial considerations:

• Gold exchange-traded funds (ETFs) track gold prices and trade like stocks. They're easy to buy and sell without needing to store physical gold. On the downside, you're exposed to counterparty risk and may have to pay management costs.
• Gold IRAs are retirement accounts that hold gold instead of stocks or bonds. They offer tax benefits for long-term investing but come with special rules and setup fees. A reputable gold IRA company can help you establish and manage these accounts. You can learn more here.
• Gold mining stocks offer the chance to earn high returns by buying shares in gold mining companies. However, company performance adds another layer of complexity, as it affects the stock value alongside gold prices.
• Gold futures are contracts to buy or sell gold at a set price in the future. They allow for leveraged investing but are complex and carry high risk.

"My preference is to have clients invest in a gold ETF," says Laura Casey, managing director at Coastal Wealth Management. She leans toward this type of gold because of the lower fees and better tax management options (compared to mutual funds).

The bottom line

Gold's enduring value in modern portfolios is clear, but how you invest in it matters. As we've covered, each gold investment type has pros and cons. So before making any moves, sit down with a financial advisor. They can help you determine the best type of gold for your portfolio and how much to buy. Your advisor can also explain how it might affect your taxes and overall investment strategy.