Please note: This content is for educational purposes only and does not constitute financial advice.
If you’ve been following our Gold Investment for Beginners series, you’ve already got a handle on why gold can be a great investment, how the gold market works and what it means to physically own gold. Now we’re getting to the important part: setting your goals. While buying gold might sound simple, knowing why you’re buying it and what you want to achieve from it, makes all the difference.
Why goals matter
Most people aren’t gold experts when they start out – and that’s fine – nobody expects you to be. But before you dive in, it’s worth pausing to ask yourself, why am I actually doing this?
Are you reacting to scary headlines about inflation or financial crises? Do you like the idea of owning something tangible? Are you hoping to make a quick profit? Are you thinking about long-term security for your family?
People buy gold for all sorts of reasons, but buying based on gut instinct or worse – panic – often leads to frustration and disappointment down the line. If you have clear goals, they can help you to stay focused, make better decisions and avoid knee-jerk reactions if and when markets wobble.
What type of gold investor are you?
Gold has earned its “safe haven” reputation for good reason. However, even within that, people come to gold for different reasons. Here are a few of the most common ones:
- Wealth preservation / inflation hedge: Protecting your money’s purchasing power when currencies or markets get shaky
- Diversification: Spreading your risk beyond stocks, bonds or property
- Legacy planning: Passing wealth on to children or grandchildren
- Portfolio stability: A steadying force during turbulent economic cycles
- Speculation: (Less common for physical gold buyers) Short-term bets on price movements
Being honest about your reasons will help shape your investment decisions; from what you buy to how long you hold it.
Assessing your risk tolerance
In simple terms, risk tolerance is your ability (and willingness) to handle the bumps along the road. Every investment carries some level of risk – the chance that prices might fall or that your returns won’t meet your expectations. Risk tolerance is all about how much of that rollercoaster ride you’re comfortable with.
A lot of things feed into this:
Time horizon: How long do you plan to hold your investment? Generally, the longer your timeline, the more you can ride out short-term dips.
Financial goals: Are you saving for retirement, a house deposit, or building generational wealth?
Your age and stage of life: Younger investors often have time on their side, while those closer to retirement may prefer more stability.
Overall portfolio mix: If your other investments are high-risk, you might want gold as a stabiliser. If you’re mostly in cash and bonds, you may tolerate a bit more movement.
Comfort level: Some people can sleep soundly through a market dip; others stay up refreshing the price charts at 2am.
The financial world loves its neat categories and often groups people as:
- Conservative: Steady, low-risk, happy with modest but stable returns.
- Moderate: Willing to accept some ups and downs for better long-term growth.
- Aggressive: Comfortable taking on higher risk for potentially higher rewards.
Real life isn’t always black and white however, and your risk tolerance can change over time. A sudden job change, health issue, or shift in financial priorities might move you from aggressive to cautious.
The risk-return trade-off
Here’s the basic rule: the higher the potential return, the higher the risk. Safe, steady investments usually offer lower returns. Bigger returns come with bigger swings and therefore more risk. You can’t get one without the other. This is known as the risk-return trade off. Understanding where you sit on that spectrum is a huge part of being a successful investor.
Where does gold fit into all this? Gold sits in an interesting spot on the risk spectrum. Compared to stocks, it’s generally seen as less volatile but that doesn’t mean it’s risk-free. Prices do fluctuate, sometimes sharply, depending on everything from global politics to interest rates.
If you’re not sure where you land on the risk tolerance scale, there are plenty of online tools and simple questionnaires that can give you a starting point, such as this one. They won’t give you a perfect answer, but they’ll help you think through your preferences and priorities.
How much gold should you buy?
A widely-cited rule of thumb is to keep gold to around 5–10% of your total investment portfolio. That way, you’re getting the diversification benefits without tying up too much of your wealth in one place. Gold can balance risks across your wider investments, but remember it’s not completely immune to price swings.
As with any investment, putting too much into one asset (even something as tried and tested as gold) can backfire if markets shift unexpectedly.
Set realistic expectations
This part’s important, especially if you’re new to gold. Gold isn’t a quick money-maker, its strength lies in stability, not sudden spikes.
If you want to make money in the short term (less than one to two years), gold can disappoint as prices can fluctuate. In the medium term (three to five years) investing is more promising as it starts to show its value as a diversifier, helping to balance your portfolio through market ups and downs.
The long term (five or more years) is where gold really comes into its own. This is when it protects purchasing power, hedges against inflation and preserves generational wealth.
The key is knowing what you’re aiming for. If you’re clear that you’re buying for stability or wealth preservation, you’re less likely to panic when short-term prices move around.
Getting started with gold investment
Armed with all this, it’s time to get specific about your own gold investment plan:
- Write down your personal objectives.
- Are you aiming for long-term security? Diversification? Inflation protection?
- Define your timeframe: Are you thinking of investing for two years or 10? Or is it something you’ll be passing on to the next generation?
- Know your risk comfort level: are you happy riding out short-term bumps for long-term gain?
- Sort out storage and security: Will you use a vaulting service, bank deposit box or home safe? Make sure you have a plan before you buy.
Setting clear goals now means fewer regrets later. As stated previously, we highly recommend you speak to a certified financial adviser before you invest your money in any asset.
Catch up with the rest of the Gold Investment for Beginners series.
