With gold at a record high, I asked a financial planner what I should know before investing in gold
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Gaby Deimeke
- While many buy gold as a hedge against inflation, CFP Jake Skelhorn told me that's a risky move.
- Instead, buying gold makes sense if it's a way to diversify my investments — and gold IRAs work well.
- Before buying gold, he told me to consider all the other costs I might face.
My husband and I have always kept our finances and investments separate. But recently, we have started to commingle some of our money and work together on joint goals. Last year, we opened up a joint bank account and credit card to fund our family expenses.
This year, we're strategizing a few ways we can invest our cash together to diversify our portfolios. Now that the price of gold is at a record high, one thing we've been discussing is the option of investing in gold bars.
Some of our friends recently bought gold bars to diversify their investment portfolios, so we decided to speak with certified financial planner Jake Skelhorn to learn more.
1. It might not be the best option for inflation
When I asked Skelhorn why people buy gold bars, he said the most common reason is that they want to use them to hedge inflation.
"When the market gets rocky, people try to seek something that seems safer or keeps them away from inflation," he said. "But investing in gold isn't always the best way to fight off inflation."
That's because Skelhorn said the price of gold can fluctuate drastically. Even though the demand for gold will increase when there's economic uncertainty, the actual prices of gold aren't tied to inflation but to supply and demand instead.
If you want to protect your money from inflation, Skelhorn recommends a longer-term strategy involving government bonds or the stock market.
2. Gold is taxed at a higher rate
Skelhorn emphasized that gold is taxed at a higher rate than normal investments.
"Capital gain taxes for gold are 28% when it's held over a year," he said. "Other assets like stocks or real estate could be taxed at 0-20%, depending on your total income for the year."
But if you're looking to invest in a tax-friendly investment vehicle, Skelhorn mentioned it's possible to instead invest in a gold IRA.
"That way, you don't have to pay any capital gain tax when you buy or sell the funds inside the IRA," he said.
3. There's no income related to investing in gold
Another factor Skelhorn advised me to consider is that I can't earn income by buying gold.
"Comparing it to stocks or bonds, which could yield interest or dividends, there's no income when you buy gold bars because you're just holding them," he said.
Skelhorn added that the only way to make money from gold bars is by selling them for more than you bought them.
4. Investing in gold can diversify your portfolio
Skelhorn did confirm that investing in gold could be a good way to diversify my portfolio.
"Gold isn't correlated with other asset classes like the stock market or bonds," he said. "So if the stock market goes down, it doesn't mean the price of gold will go down with it."
However, he said that before buying gold bars, we should understand there could be added fees depending on how we buy and store it.
This article was originally published in July 2024.