Dear Penny: I’m in College With $10K Saved. Should I Invest It All in Gold?

Dear K.,

When I think of “good, safe options” for investing, I’m afraid “pour life’s savings into gold” doesn’t make my list.

You admit that you have no knowledge in this area. Successful investors will tell you not to invest in anything you don’t understand.

You know what you don’t know. That’s a valuable asset. Let’s use your lack of knowledge to your advantage.

What you DO probably know is that gold prices are soaring right now. That happens when investors get nervous for a host of reasons best left to your economics professor to explain.

There are plenty of reasons to be nervous right now: The next stimulus bill  could stall at a time when coronavirus cases are rising. The dollar actually is declining. Add U.S.-China tensions to the mix.

No one — not you, not me, not the smartest investors and economists in the world — can tell you what toll all that will take. There are plenty of people who will pretend that they do. Some of them will take huge risks based on their predictions. A few of them will profit, while many will come out on the losing side.

Here’s what we do know: Gold prices are highly volatile, which is one reason it’s not a good choice for beginning investors. Plus, prices have already surged. Whenever you make investment decisions based on the news, you risk buying high and selling low. You don’t need me to tell you that’s not financially prudent.

While amateur day trading has gotten a lot of attention lately, the safest, smartest way to invest is to commit for the long haul.

The general rule is that you only should invest money if you can afford not to touch it for at least five years.

You need a diversified portfolio, which basically means you want a broad mix of assets. The easiest way to get one is by buying a total market exchange-traded fund, which will give you a tiny piece of the thousands of companies on the overall stock market.

Another option is to use a robo-advisor, which will use a computer algorithm to select your investments based on your age and goals.

Doing so, you take advantage of the stock market’s long-term growth, rather than taking a risk on a single company or sector. Yes, your investment loses value if the stock market drops. But historically, the stock market has increased in value over time. The S&P 500 averages annual returns of around 10%.

You can buy an ETF by opening an online brokerage account. If you’re earning income at a job, opening a Roth IRA to start investing is also an option.

I’d start small. Leave enough to cover at least three months’ expenses in your savings account to cover emergencies.

Once you’ve figured out how much you need to save vs. what you can afford to invest, I suggest investing a little bit at a time instead of in a lump sum. Try what’s known as dollar-cost averaging, where you invest the same amount of money regularly, like once a month.

Doing so evens out the price you pay over time. Some months, your money won’t go as far as it will in other months, but you’ll avoid consistently overpaying.

The beauty of this strategy is that you don’t really need to acquire financial expertise. But if you want to learn more about investing in gold or any other specific industry, try using a stock simulator to get started. You can create an imaginary portfolio and watch how it fluctuates to get practice before you put actual money at stake.

Eventually, if you decide to take the risk of choosing your investments, avoid putting more than 5% of your portfolio in a single industry.

It sounds like you have a solid financial foundation. You already have $10,000 saved. Your student debt sounds manageable.

Take a break from the news if it’s making you antsy. No making investment decisions based on current events. Time is your best friend when you invest, and right now you have plenty of it.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to [email protected].

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