There's an old investment saying that smart money should never follow dumb money. In other words, when an investment class gets too pricey because other investors have been rushing in, it's not the time to buy.
Which brings us to gold: If you've had gold in your portfolio to counterbalance the fluctuations of the stock market, you've had a nice ride. Last week it topped $1,500 an ounce. So if your portfolio lacks gold, is the price too high to add it now?
Gold has traditionally been considered a good hedge against inflation and stock market volatility, and fears have been rising as economic instability continues. But gold shouldn't be considered stable. It is a volatile investment -- during the 1980s and 1990s, the price dropped pretty substantially, and if you buy now, when it's expensive, you could suffer losses. If you buy gold through an exchange-traded fund, or ETF, you will also pay fees, and if you buy bullion or coins, you'll pay storage costs.
There are other hedging strategies besides gold. Treasury securities are a counterbalance to stocks, but they are also expensive right now. Bonds are a good choice, and international funds can also help even out returns. The point is to have a well-diversified portfolio that includes a variety of assets, so that in the short term and the long term your wins will balance any losses.
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