If you’re just starting to build your investment portfolio, the many different classes, commodities, stocks, shares and bonds available to you can be confusing at first.
The first step is to choose a fund supermarket to trade on. Once you’ve done that, you can start to look at where you will place your money.
Unless you have very clear ideas about what you want to invest in, it’s sensible to spread your funds around slightly while placing some of it into long-term reliable bets like gold.
Newcomers often start by investing in multi-asset funds, which can combine different asset classes like equities, bonds and commodities like gold.
You can manage your risk by choosing a fund with more or less of its assets invested in equities – the higher the proportion of equities, the higher the risk will usually be, but in a healthy market this can lead to greater rewards.
In comparison, gold is usually considered a ‘store of value’ as it rarely drops significantly in value, even in troubled markets, and generally trends upwards over the long term.
Choosing the right multi-asset fund is a personal choice, depending on how much of a rate of return you want and how much risk you are willing to take on.
As your investment portfolio grows, you can spread your funds into more than one multi-asset fund in order to get the balance just right for you.
Pros and cons of multi-asset funds
|Easy to estimate risk and return||Can miss best returns in rising markets|
|Managed so you don’t face tricky decisions||Removes some of the fine control from you|
|One-stop way to invest in multiple assets||May cost more due to management fees|
The diversification of multi-asset funds is one of their clearest strengths, giving you a single port of call to spread your investment across different assets and classes.
If one asset class falls in value, the hope is that the others in the fund will more than make up for this, giving you a net gain overall.
This can allow you to invest in specific assets like gold, while also benefiting from the expertise of a fund manager who will place a certain percentage of your investment in other assets they believe will be profitable.
Depending on the multi-asset fund you choose, that might mean focusing on big brands in the UK or tracking the FTSE 100, a different major stock market like the S&P 500, or certain countries’ economies and emerging markets.
A multi-asset core
For beginners it’s sensible to put multi-asset funds, which can include exchange traded funds (ETFs), at the core of your portfolio until you build your own knowledge and expertise.
Their built-in diversification and hedging can provide you with more confidence, and while the returns may be lower in a rising market, assets like gold usually perform well in an upturn without losing dramatically in a downturn.
As you gain confidence of your own, you can start to invest in more specific funds and assets that you think are going to gain value – these form the satellites to your multi-asset core.
Satellite funds might return value in the short term before you cash in, or might be higher risks that you don’t want to put at the core of your portfolio.
You should never invest money you can’t afford to lose, but you might expect your core to gain in value over time, whereas you might hope for your satellite investments to pay off quickly with greater profits.
One way to grow your satellite investments organically is to reinvest the profits you make from the multi-asset core of your portfolio.
You might even choose to focus specifically on gold for this, while using the gains you make from the precious metal to diversify into other assets and classes over time.
When to look away
Once you have a fairly mature, diverse investment portfolio with an acceptable risk profile – ignore it.
You should of course be aware of where your funds are and take action if you notice conditions worsening in any of the markets you are most exposed to.
But in general, the more small transactions you carry out, the more you will rack up in management fees, so resist the urge to micro-manage your portfolio.
If things are going well and there’s no immediate cause for concern, you might want to make it only a quarterly task to check on your investments and make any necessary tweaks.
Remember that the core of your money is in funds that perform well over time, and which are designed to hedge against short-term losses in any one class.
Because of this, it’s sometimes best to ‘wait and see’ and trust your investments to return a net gain even if one class is falling over the short term, compared with the losses you might make due to transaction fees and liquidating your investments at the bottom of the market.
It’s sometimes actually better to move funds out of your best performing assets and put them into the weaker ones – that way if the weak assets are undervalued, you make greater profits as they recover, compared with leaving those funds in stronger stocks at the top of their market cycle.
Why choose gold?
Gold performs well in uncertain markets, as it’s deemed reliable when other asset classes are not.
Both the UK and the USA have shown signs of investors turning to this shiny safe haven in recent months, according to gold trading platform BullionVault.
Late summer 2019 saw the highest transaction numbers from private investors buying gold since Donald Trump became the US president.
Meanwhile in the UK, gold prices reached a peak of £1,271 per ounce in August 2019, according to BullionVault, up 8.8% from the previous month’s average and beating the record high of September 2011 when rioting in UK cities led to a rush on gold.
It’s not just sterling where gold is performing well – the platform also reported it at a six and a half year high against the dollar and all-time highs against the euro.
More private investors are selling gold too – up 6.7% from the previous month on BullionVault in August – but the number of buyers was up 34.2%, a clear indication that rising demand is outpacing rising supply by a factor of around five to one.
BullionVault’s Gold Investor Index is a measure of this, with a figure above 50 indicating more buyers than sellers and therefore a net demand for gold.
In June this stood at 49.1, but in July it rose to 52.6 as demand overtook supply, and as of August 2019 it reached 55, its highest level in almost a year.
This two-month gain of 12% is again the highest since September 2011 and perhaps a sign that investors see the current political climates in the UK and USA as equivalent to the 2011 riots in England’s cities.
BullionVault director of research Adrian Ash commented: “If gold demand and prices offer a barometer of fear, then Western investors and savers suddenly see a heap of trouble ahead.
“Gold demand has jumped as prices surge. That snaps the pattern of cautious bargain-hunting and profit-taking which has capped the market since Trump won the White House in late 2016.
“First-time buyers are leading this jump in gold demand, with August bringing the most new investors to bullion in more than six years.”
If you choose to buy gold, whether as part of a new portfolio or as an addition to your existing investments, you’re in good company.
The number of new users on BullionVault was up by just short of 160% in August compared with the worldwide average for the past year, and the highest since April 2013.
New registrants from the UK and US were at their highest since November 2016, while Spain and Germany logged their highest month ever for new users.
In terms of weight, the net demand for gold in August was nearly 330kg, with a market value of about $16 million or just over £13 million.
Factors contributing to the increase in gold’s price over the summer include the US-China situation, as both countries increased tariffs on the other’s exports in early May, taking gold to a five-year high price in June.
The high demand may also be a sign that investors are anticipating a fall in the value of one or more major currencies, as gold is particularly seen as a store of value when events conspire to weaken the US dollar.
Disclaimer: The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.