Why you should allocate 1% to 2% of your portfolio to gold

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2. Historically, a little gold has improved a portfolio. What we do know, however, is that at least historically there has been some benefit in holding small amounts of gold — around 1% to 2% — in a portfolio. As a physical asset and an historic store of value, gold tends to behave differently than paper assets and helps to diversify a portfolio.

Market Realist –The graph above shows gold (GLD)(IAU) prices along with inflation rates over the last ten years. We used the year-over-year change in the consumer price index (or CPI) to track inflation. In the last three periods of rising inflation—August 2007–August 2008, July 2009–May 2010, and November 2010–September 2011—gold prices also rose. This means that gold is a good hedge against inflation.

Please read the next part of this series to learn how investing in gold can help diversify a portfolio containing equities (SPY)(IVV) and bonds (BND).

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