The increase in gold ROI and popularity has inspired young investors. Experts have some suggestions for investing in gold.
What asset class do millennials and Gen Z investors want to have? One answer may be surprising: gold.
According to recent research by Bank of America Private Bank, which serves ultra-high-net-worth clients, 45% of wealthy investors under 43 own physical gold as a tangible asset, and another 45% are interested in holding it. These proportions are much higher than any other age group.
Liz Young Thomas, head of investment strategy at digital financial services firm SoFi, said that this group was not originally interested in assets such as gold, cash, or U.S. Treasuries because they believed these assets were "boring".
Thomas pointed out that "with rising yields on U.S. Treasuries, high interest rates on cash payments, and rising gold prices, we see returns in a short period of time that we typically do not see. Needless to say, when asset returns are lucrative, younger audiences also start to get excited."
This is confirmed by another study by asset management company State Street, which found that millennials have the highest allocation to gold in their investment portfolios, at 17%, far exceeding baby boomers and Gen Xers, who allocated 10%.
Why are young investors becoming so interested in this asset, which has been around for thousands of years and is somewhat dull?
First, one reason for gold's renewed popularity is its healthy spot price, which has surpassed $2,400 per ounce at the time of writing.
Gold bars are also increasingly appearing on the shelves of popular retail outlets, raising its profile. According to Wells Fargo, the large chain store Costco began selling 1-ounce gold bars last fall, with monthly trading volume reaching $200 million.
As young investors are inspired by gold, what rules should they remember? Here are some thoughts from the experts:
Owning physical gold can be tricky.
One of the charms of gold is that it is tangible. If the global financial system were to collapse, or if currency were to collapse, at least people would still have something tangible.
Eric Amzalag, a financial planner at Canoga Park, California, said, "I find that my millennial clients are more interested in investing in gold than ever before as their wealth grows and their investment goals shift from growth to capital preservation." He added that this was because these investors were interested in owning and self-storing gold investments.
Consider gold ETFs.
Gold exchange-traded funds (ETFs) either backed by physical gold or investing in gold futures solve the problems of purchasing, storing, and selling while making asset allocation relatively easy.
Thomas of SoFi said, "Buying a gold ETF involves paying some related fees, but if investors don't want to actually take delivery of gold and look for ways to store it, then ETFs are a good option."
Don't over-allocate to gold.
As a non-correlated asset and a potential hedge against inflation or volatility, gold can certainly play a role in an investment portfolio. However, as a commodity, gold is highly volatile, and investors' level of affection for it fluctuates.
Therefore, experts suggest that stocks should still make up the majority of investors' portfolios. Companies that can generate sales, earnings, dividends, and potential stock price appreciation are a more dynamic and higher-return asset class.
Jonathan Cameron, a financial planner in Miami, says that young investors may consider gold as a supplement to their investment portfolio.
Cameron said, "We work with many young professionals and have been adding gold ETFs (about 5%) to many clients' portfolios as a hedge for several years. This is a decision that everyone agrees with."