| Gold rush -- 21st century style
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If you subscribe to this dire scenario for the dollar
then one way to hedge against a dollar that's losing value is by
buying gold.
The caveat that applies when buying almost any investment
also applies here: Do your homework first. Countless investors have
been burned by gold. The metal peaked 26 years ago at $850. Anyone
who bought at the high saw it sink to $255 in 2001, and even though
the price of gold has risen significantly since, the investment
is still under water.
Tom Grzymala, a certified financial planner based
in Keswick, Va., says he recently dipped into gold for his own portfolio
in the form of Vanguard's Precious Metals and Mining (VGPMX) fund.
"If you looked at Exxon (XOM) four years ago
at $35, per share, you would have said it was too high. Now it's
at $60, and some say it may go to $100. It's all relative. I realize
gold is high, but it may be higher in six months or a year. I think
it's safe and smart to put a small portion of a portfolio, maybe
1 percent to 3 percent, into gold. It's a little bit of a security
blanket."
But if gold seems a bit risky for you, there's no
shame in sitting this one out. In fact, it may be prudent.
William Suplee, president of Structured Asset Management,
Paoli, Pa., says everyone definitely does not need to have gold
in his or her account.
"I don't think gold is in a bubble phase, yet,
but it's still curious. The commodities market and the stock market
are the only places in the world where people wait for prices to
go up before they buy and wait for prices to drop before they sell.
When you have a sale at the supermarket you buy; you don't wait
until the price doubles."
Suplee says the advent of exchange-traded
funds, or ETFs, that have actual gold backing their shares will
keep the price of gold relatively high.
"As more money pours into the ETFs, they'll have
to buy more physical gold and that increases demand. But it doesn't
mean you'll make a lot of money speculating on it. Historically,
gold hasn't been that good of a diversifier. People think it's a
good inflation hedge. If you're worried about inflation, buy I-bonds.
You won't make a whole lot on them, but if inflation is what you're
concerned about buy I-bonds."
If you're still interested in gold and find a golden
security blanket in your portfolio appealing, you'll need to decide
how to buy it. Gold is one of the few physical assets you can own
in large enough quantities to make it worthwhile, but for most people
there are better ways to take advantage of the metal's rising price.
Bankrate's article on ways
to invest in gold can help you decide what's best for your portfolio
and your risk tolerance.
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