Simply Money: Gold's a good investment
By Nathan Bachrach and Ed Finke • January 14, 2011
I want to diversify my portfolio by adding precious metals. What are your current thoughts on gold?
When it comes to precious metals, we like the idea of having 5-10 percent exposure in gold as a long-term holding. This is an appropriate position for most investors. The easiest and least expensive way to incorporate gold into your portfolio is with a Gold Exchange Traded Fund (ETF). Some of the more popular ETFs are the SPDR Gold ETF (ticker symbol GLD) and i-shares Gold Trust ETF (symbol IAU).
If you are interested in actually owning physical gold, IAU is a product that offers the unique flexibility of exchanging funds for actual gold. In either case, youwould be buying at roughly the current market price, and could sell at any time just like a stock. Just understand that ETFs will also have some internal annual fee, though it is usually fairly low.
If you're thinking of buying and selling gold from a dealer, understand those transactions will involve some form of commission on both ends.
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Whether you choose ETFs, dealers, or some other form of investing, be sure to do your homeworkfirst. Clearly understand all costs and fees before making a decision. Gold, by its nature, will be a volatile component in a portfolio, so be careful to evaluate the risk before deciding your exposure.Bond stability
Q: Currently, I am invested in two bond funds with the state of Ohio, but if the state or its municipalities default or declare bankruptcy, am I in danger of losing my money?
A: Bonds have beentouted as "safe" investments, but we always caution that no security is safe or guaranteed. While your approach to long and short-duration municipal funds creates a more diversified portfolio, your concerns about the financial health of both Ohio and the local jurisdictions issuing bonds are also valid. The fiscal problems in state and local governments continue to affect bond stability and overall market conditions.
However, the good news is that the U.S. Constitution maintains that states cannot declare bankruptcy. While the threat of default may be overblown, it would bedifficult for the national government to stand by and watch states fail after throwing massive amounts of bailouts at the private sector for public companies such as AIG and GM. Municipal bonds have sold off recently, so most of the potential bad news may already be built into taxpayers bills.
As with any portion of your investment mix, you should keep a close eye on news that may affectthe bond sector, then be flexible enough to move. And of course, it is always smart to diversify your positions as much as possible. We also recommend speaking with a financial professional - he or she may be better qualified to help you make long-term financial decisions.
Nathan Bachrach and Ed Finke of The Financial Network Group offer portfolio management services at their Sycamore Township office. The firm is a registered investment advisor. Tune into Simply Money daily on 55KRC (550 AM) from 6-7pm, and on the Fox 19 morning and evening news.
