MAKING CENTS: Fitting gold into your portfolio

COMMENTARY — Whenever a specific asset class appreciates significantly, many wonder if they should own something in that category. Gold has been in that camp since the day the USA made it legal for citizens to once again own gold in the early 1970’s.


The first question may be whether or not gold is appropriate in an investment portfolio. That answer may depend on many circumstances. Amongst them are time horizon, tolerance for risk, need for liquidity and your liquidation strategy.

Those who believe that inflation will get higher over the long run are frequently attracted to asset classes that include gold. But the question is why gold? Is it the only hedge against inflation? Or is it because it is the most frequently discussed or newsworthy precious metal?

There are many other metals in which one may invest, such as copper, silver, platinum, palladium and so on. In any given year, any one of the asset classes such as metals, energy or agricultural may outperform the other.

If you believe that broad exposure to the asset class is something you want, build a diversified portfolio that may include all of the above or those you feel strongest about. You can buy equity products that represent an asset class or a company that mines, refines or distributes the metal.

If you are focused on a single metal, such as gold, there are a few ways in which you may invest. The most obvious is physical possession. That means you simply buy the metal and store it somewhere safe.

Storage is an issue. There are three ways to take physical possession and store your holdings; in your home, in a bank safe deposit box or at a gold storage facility.

If you choose to store your metal in the home, get a safe that will properly protect against theft. You may not be able to insure these holdings, but ask your agent about limits and cost of coverage. Without insurance and/or a great safe, remember that losing a small coin containing an ounce of gold is a costly loss.

Many opt for using a bank safe deposit box. The obvious here is the increased safety when compared to the home. Many institutions have insurance for the contents. A possible downside to a bank vault is access. Your bank does not operate 24/7 in the event that you want to retrieve your holding over a holiday weekend.

Another choice is a private depositary. For investors with large holdings, this option makes a lot of sense. The commodities exchange and the U. S. Government use private depositary companies. As the popularity of investing in gold has risen in recent years, so too has the use of a depositary.

Make sure that the depositary you choose is insured. Many will also facilitate the liquidation of your holdings. Making it easier for you to turn your gold into cash at a competitive price is a lot easier than going down to the nearest gold shop to sell your holdings.

 

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthmanagement.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

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