By Aliredha Walji, Vice President, USA of ShariaPortfolio
Article was originally published on LinkedIn and is available here.
Most investment experts agree that diversification–though not a guarantee against loss–is the best way to reach your long-term financial goals while minimizing risk. When you diversify your portfolio, you combine different assets to reduce the risk that they will all respond to a market event in the same way.
In other words, in a diversified portfolio, some assets will zig when others zag. This is why many investors add alternative assets, such as precious metals, real estate, oil, natural gas, corn and other commodities, to their portfolios. And among these different types of assets, gold has always been especially valued for the diverse benefits it can bring to investors.
At ShariaPortfolio we believe that gold can be an important component to your portfolio. Here are five reasons why:
- Gold holds its value. Throughout history, people have seen value in owning gold and it has been handed down for generations as a way to preserve family wealth. It was the first form of money, and then became the standard that set the value for money created by rulers and nations. Unlike paper money, coins or other assets, gold is prized as a limited resource that will always have value.
- Gold is a safe haven.Historically, gold has maintained its value during periods of financial turmoil and geopolitical crisis. For example, gold prices rose by 24 percent during the financial crisis years of 2008-2009. When the dollar is weak, people often flock to gold, which raises itsprice.Gold also retains its value during times of heightened geopolitical tensions, which may be important today when international relations are unsettled by a number of issues relating to trade, nuclear arms negotiations, and attempts to destabilize democratic governments.
- Gold has been an excellent hedge against both inflation and deflation. Gold is often one of the first choices for investors seeking to ride out market volatility. During times of inflation, higher interest rates erode profits for corporations and cause stock values to drop. Global deflation, when prices decrease, business activity slows and the economy is burdened by excessive debt, hasn’t been seen since the Great Depression. But during that time, the purchasing power of gold rose sharply while other prices plummeted.
- Gold has supply constraints. Unlike paper or digital currency, the supply of gold is not limitless. Production of new gold from existing mines had been declining since2012, according to BullionVault.com, and It can take from five to 10 years to bring a new mine into production. Much of the supply of gold in the market since the 1990s has come from sales of gold bullion by global central banks. This selling has slowed considerably in the past decade over worries about the strength of the dollar, and according to Forbes, central banks are now on a gold-buying spree. As a general rule, reduction in the supply of gold increases gold prices.
- Gold is increasingly in demand.Emerging economies have raised the standards of living for billions of people and according to World Data Lab, more than half the world’s population is for the first time living in households earning enough to be considered middle or upper class. This opens a huge market for gold, which along with its heirloom, crisis hedging and investment value, also has many industrial uses.
Bought alone as an investment, gold is too speculative for most investors. Gold can, however, play a significant role within your portfolio as an important asset for diversification, helping you to minimize risk and achieve your long-term financial goals.
If you want to learn more about how gold can become part of your investment strategy, please feel free to reach out to myself or one of ShariaPortfolio’s other advisors.
Aliredha Walji manages the US operations at ShariaPortfolio, Inc., and is based out of the company’s main office in Lake Mary, FL. More information on ShariaPortfolio can be found at www.ShariaPortfolio.com.