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Physical gold mitigates investor risk

Gold SMSF

Holding physical gold can lower investor risk in comparison to purchasing shares in a company that participates in the commodity sector.

A wealth manager specialising in precious metals has suggested holding physical gold can lower an aspect of investment risk associated with making a portfolio allocation to commodity shares.

Gold Bullion Australia Group national sales manager Ruth London made the recommendation for situations where SMSF members are considering whether to participate in the precious metals market through buying shares in a company that is part of that sector.

“Physical metals as opposed to paper gold do not have counterparty risk. What I mean by when you hold physical metals, compared to mining stocks, you don’t have that counterparty risk of bad management of a company resulting in a stock dropping significantly in value,” London told attendees at SMSF Trustee Empowerment Day 2024, co-hosted by smstrusteenews and the SMSF Association in Sydney last week.

With regard to potential returns, she pointed out an investment in physical metals provided a dependable long-term conservative option for SMSF investors.

“If I had to look at the growth of gold over the last 20 years, it would have provided around an 8 per cent return. So that’s a healthy, comfortable, stable return for the more conservative investor,” she noted.

According to London, it is her experience SMSF members have historically favoured allocating a particular portion of their portfolios to gold.

“The first question we get from trustees is: ‘How much should I invest in precious metals as part of my portfolio?’ That really is up to the trustees themselves as they must ascertain how much they see fit for the diversification needs of their end investing goals,” she said.

“Typically from a provider’s point of view, and I’ve been in the industry for just over 12 years, what I tend to see in the SMSF space is around 5 per cent to 15 per cent allocations as an overall.”

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