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Is gold’s glitter tempting you?

By Judy Martel · Bankrate.com
Friday, August 12, 2011
Posted: 3 pm ET

During all the market volatility the past few weeks, one asset class has seen a pretty steady climb: gold. As of Friday, its price was $1,747.90 a troy ounce and nervous investors are wondering if they should increase their allocation or add it to their portfolios.

Gold is considered a hedge against inflation and a decline in the dollar. But before buying into the boom, think about whether it fits with your overall asset allocation. "Gold is not liquid," says Tami Simpson, president of Wealth Financial Group West in California. "So if you need income from your portfolio, it doesn't work."

Another important point to consider, she adds, is that "in all this euphoria, people forget gold can lose value. Ask yourself how much (of your portfolio) can be risked?" The answer depends on a number of factors, including your age, need for income and tolerance for risk. "I definitely think gold is a long-term investment," says Simpson.

If you've thought it through and decide to buy, Simpson advises allocating no more than 10 percent to 20 percent of your total portfolio to gold. As far as whether to buy now: "I never try to time it," Simpson says. "If you want it, I would buy it."

How to buy gold

If you decide to add gold to your portfolio, there are a few ways to do it.

  1. Gold bars or ingots that you can purchase online. You'll have to figure out how to store it, but some sellers will keep it for you in a secure facility and charge a storage fee.
  2. Exchange-traded funds, which offer more liquidity, though there are fees. This is one of the easiest ways to invest in precious metals.
  3. Gold mutual funds that buy shares in gold-mining companies.

Don't fall for the hype and the numerous ads encouraging you to buy. Make sure you thoroughly check out any investment and remember the risks as well as the rewards.  

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