As we approach a new year, investors are questioning the billions spent on AI infrastructure — a main driver of U.S. stock prices in 2025 — and the U.S. economy is facing pricing and unemployment pressures. Despite those potential headwinds, declining interest rates in 2026 could support resilient corporate earnings.

Let's explore what experts say about these competing dynamics and their impact on different areas of investment in 2026.

Learn more: How to start investing: A step-by-step guide

After two consecutive years of double-digit gains, the S&P 500 (^GSPC) is poised for another profitable year. Ayako Yoshioka, portfolio consulting director at Wealth Enhancement, highlighted the S&P 500’s average annual return of about 7% as a reasonable expectation for 2026. “Earnings growth is expected to be over 12%” next year, Yoshioka explained, but “elevated valuations remain a concern.” The 7% target allows room for valuations to contract slightly.

Yoshioka also expects some volatility next “as the AI theme continues to be hotly debated.” The debate centers on whether AI stocks are appropriately valued given the technology’s potential to reshape business practices across many industries.

Learn more: AI stocks could see a volatile first half of 2026. Here's why.

The small-cap S&P 600 index and the mid-cap S&P 400 underperformed large caps in 2023, 2024, and 2025 — despite some predictions that smaller companies would shine in 2025.

At least two experts believe small- and mid-cap investors may finally be rewarded in 2026. Yoshioka noted that “earnings growth in 2025 for the S&P 600 index is expected to be 18% and valuation is more reasonable” vs. large caps. Yoshioka also pointed out that if interest rates stabilize next year, mergers and acquisitions activity could pick up, which would benefit smaller companies.

David Rosenstrock, director at Wharton Wealth Planning, agreed. He added that small- and mid-cap technology and finance stocks could have a strong year, driven by earnings. Financials may benefit from “innovation and a steeper yield curve, which should improve net interest margin,” he explained. AI and digital innovation may also be key drivers, Rosenstrock continued.

Learn more: See the stocks with the highest 52-week gains

According to Crit Thomas, global market strategist at Touchstone Investments, international earnings are expected to grow in the high-single digits in 2026. He cited strong price and earnings performance from European banks as reason for optimism. Near-term conditions in the U.K. are a concern, but low valuations may provide protection and even some upside.

“Developed international equities offer long-term advantages,” said Thomas, “including lower valuations, higher dividend yields, potential currency tailwinds, and less reliance on a narrow set of U.S. megacap stocks.”

Gold’s value increased more than 50% in 2025, thanks to geopolitical tensions, strong central bank demand, and global economic uncertainty. Paul Williams, managing director at gold bullion supplier Solomon Global, expects these drivers to remain firmly in place in 2026. In other words, gold’s historic run is likely to continue. “We expect the precious metal to continue its upward trajectory and reach $5,000 per ounce by the end of 2026,” said Williams.

Learn more: How to invest in gold in 4 steps

Other analysts agree. Bank of America and HSBC researchers also predicted gold will reach $5,000 per ounce by the end of the next year. Goldman Sachs targets a year-end gold price of $4,900 per ounce.

Learn more: Thinking of buying gold? Here's what investors should watch for.

In 2026, you may need to make some of your retirement contributions with after-tax money. If you make more than $145,000 a year and you’re over 50, your catch-up contributions must be after tax. Catch-up contributions are higher retirement plan deposit allowances for workers aged 50 and up.

Learn more: Retirement planning: A step-by-step guide

After-tax contributions, called Roth contributions, can be withdrawn tax-free in retirement, along with their associated earnings. Note that if your 401(k) does not support Roth contributions and you make more than $145,000 annually, you will be held to the standard 401(k) contribution limit without the added catch-up allowance.

In 2026, the standard 401(k) contribution limit is $24,500. The catch-up limit is $8,000. Workers aged 60 to 63 may qualify for a larger catch-up limit of $11,250.

Traditional 401(k) contributions are made with pretax funds. You pay the taxes on those later, when you withdraw funds from the account.

The 2026 IRA contribution limit is $7,500, and the IRA catch-up limit is $1,100.

A high-yield cash savings rate might outpace inflation, but you won't get rich from your monthly interest earnings. If you are committed to a wealthier future, adding an investment program to your savings strategy is the way to do it.

Use this step-by-step guide to establish a sustainable, profitable, and long-term investing habit that helps you realize your financial goals.

Investing involves the risk of financial loss. It also consumes cash that may be better used for other purposes, such as paying bills or repaying debt. For these reasons, it's wise to get your finances in order before you put money into appreciable assets like stocks or real estate.

Two important issues to address are high-rate debt and cash savings.

Average credit card interest rates usually run higher than 20%. That is roughly double the long-term average annual return of the stock market. It is also several times greater than real estate's long-term average annual appreciation.

The takeaway? Credit card debt costs more than you can realistically expect to make investing. This is especially true in the short term when asset performance can stray from the averages. If you have high-rate debt, pay it off before you invest.

Learn more: The best 0% APR credit cards

Cash savings functions like an insurance policy for your investment portfolio. With enough cash on hand, you should not need to reach into your investment account to cover unexpected expenses. You can instead leave your capital invested to reach its full potential.

Many experts recommend accumulating enough cash to cover three to six months of your living expenses. With this balance, you can hopefully withstand a layoff, health scare, car accident, or other expensive emergency without selling your investments.

Over time, cash loses purchasing power due to inflation. You can minimize that effect by storing your emergency funds in a high-yield savings account.

Before investing in a taxable format, make sure you are taking full advantage of tax-advantaged retirement accounts. The tax perks you get in a 401(k) or IRA are valuable and expedite your wealth production.

Learn more: 401(k) vs. IRA: The differences and how to choose which is right for you

A 401(k) is typically available through an employer, though you can set up a Solo 401(k) if you are self-employed. There are two types of tax treatments for 401(k) contributions, called traditional and Roth. Your 401(k) may offer one or both contribution types.

Traditional 401(k) contributions are taken from your paycheck before income taxes are calculated. They reduce your taxable income. Taxes on the investment returns are deferred until you make withdrawals. Withdrawals are taxed as income.

Roth 401(k) contributions are made with after-tax funds. They do not reduce your taxable income. However, you pay no taxes on the annual investment returns, and qualified withdrawals in retirement are tax-free.

Learn more: What is a 401(k)? A guide to the rules and how it works.

Whether you opt for tax-deferred or tax-free investment growth, your account balance appreciates faster relative to taxable investing. In a taxable account, your real return is the gain minus the taxes you pay on those gains. Many investors must withdraw funds from the account to pay those taxes, which reduces the invested balance and gain potential. Investing within a tax-deferred account, on the other hand, postpones the tax liability so your full balance can remain invested, compounded, and growing over time.

Many 401(k)s additionally offer employer-matching contributions, which also accelerates wealth. Experts recommend taking full advantage of employer-matching contributions before any taxable investing.

Learn more: How a 401(k) match works and why you should seek it out

IRAs are widely available from financial institutions and some smaller employers. IRAs also allow for traditional and Roth contributions, but not in the same account. You would deposit traditional contributions to a traditional IRA and Roth contributions to a Roth IRA.

IRAs, relative to 401(k)s, usually have more diverse investment options. IRAs also have lower contribution limits unless you are contributing to a SEP IRA through a business you own. Additionally, Roth IRA contributions are subject to income thresholds. If you earn a high income, you may not be eligible.

You can invest outside of your retirement accounts independently or with the help of an advisor. If you decide to seek outside guidance, you can choose from a robo-advisor or a full-service financial advisor.

A robo-advisor is a managed investing program. Investments are selected for you based on a stated risk profile and strategy. You may have access to a human advisor, or you may not.

Robo-advisors generally cost less than human advisors, but the investment programs may be too generic to serve your needs.

Learn more: Robo-advisor: How to start investing right away

Full-service financial advisors can tailor an investing strategy to your situation. Many will also guide you on other financial strategies, such as budgeting, debt repayment, and insurance.

Investment managers normally have higher fees than robo-advisors. Some earn trading commissions, while others charge an annual fee based on how much money they manage for you.

Learn more: How much does a financial advisor cost?

If you decide to invest on your own, your next step is creating an investing strategy that aligns with your goals, timeline, and risk tolerance. Your strategy can take different forms, but many investors express their approach as a target asset allocation.

Asset allocation is the composition of your investments across asset types. Because each asset type responds differently to market conditions, the way you combine them shapes your portfolio's overall risk level and performance.

Five common asset types are described below.

Stocks are ownership positions in companies. The most accessible stocks are those that trade on public exchanges, such as the New York Stock Exchange or the Nasdaq. Stocks are available for purchase within many taxable brokerage accounts and some IRAs.

Stocks can gain or lose value from one year to the next, but they tend to appreciate over the long term. Some stocks additionally provide cash income by way of dividends.

Read more: Check out the latest stock market news

Bonds are debt securities. The bond issuer is the borrower, and investors, called bondholders, are the lenders. Bonds are most readily accessible to individual investors through mutual funds and exchange-traded funds (ETFs).

Bond values can rise and fall with interest rate changes, but the terms of the debt do not change. If a bond promises to pay a fixed rate of 2% monthly and then repay you $1,000 when the debt matures, those things will happen — unless the issuer defaults.

Bonds provide stability and income within an investment portfolio.

Precious metals include gold, silver, and platinum. You can invest in these metals physically by purchasing coins or bars. You can also invest in funds that hold precious metals on behalf of their shareholders.

Learn more: What to know before buying gold, silver, or platinum from Costco

Precious metals appreciate over long timeframes, but they can be reactive to economic conditions. Gold, for example, tends to rise in value when investors are feeling uncertain about the stock market. For this reason, gold is often held as protection against stock market downturns.

The downside is that gold can remain flat or negative when stocks are performing.

Read more: How to invest in gold in 4 steps

Cryptocurrency is decentralized digital currency. Decentralization means no bank or government agency oversees or regulates transactions. The most popular cryptocurrencies are bitcoin and ethereum.

Cryptocurrencies can be volatile and unpredictable. As an example, bitcoin lost more than two-thirds of its value between late 2021 and early 2023. It then set record highs multiple times in 2024.

Some investors hold cryptocurrencies to diversify their investment holdings. Others use these currencies to make private, low-cost money transfers around the world.

You can invest in real estate directly or indirectly. The direct method is to purchase real property to resell or rent. If you prefer to be less hands-on, you can buy securities that invest in real estate. These are more volatile than physical property because they can be traded quickly. Their market values, therefore, can be more reactive to financial market conditions.

Investors purchase real property for appreciation potential and rental income. The long-term average annual appreciation for real property underperforms the stock market, but home prices are less volatile than stocks.

Real estate securities are popular as diversification assets.

You can amplify your results by investing regularly, and a budget helps you do that. Choose an amount you can funnel into your investment account monthly without impacting your ability to pay bills. Assuming you are maxing out available retirement contributions, you can start small — say, $50 monthly. Plan on raising the amount as you build your investing skills and confidence.

You can stay on track by automating the funds transfer into your investment account. If possible, automate the trades as well. Doing so removes emotion from your trading decisions and establishes investing as a habit.

Even if your portfolio is simple, it will require some maintenance. Tasks to consider annually include evaluating results, validating your strategy, and rebalancing.

Check the performance of your holdings against their peers. For example, if you have an S&P 500 index fund, verify that it is performing on par with other S&P 500 funds.

Review your target allocations and the portfolio's overall performance. Consider whether you need adjustments to lessen volatility or improve growth potential.

Rebalancing is the process of restoring a targeted asset allocation.

Say you like the moderate growth profile of a portfolio with 60% large-cap stocks and 40% U.S. Treasury securities. Even though you make ongoing investments in this ratio, your portfolio likely reflects something different. This is because stock values can rise or fall, but bonds remain relatively stable. Usually, you will end up with a higher-than-intended stock percentage, which increases your risk. To rebalance your 60/40 allocation, you would sell some of your stock positions and use the proceeds to buy U.S. Treasurys.

You will not need to rebalance if you use a robo-advisor or a human advisor. Also, human advisors should periodically initiate conversations to evaluate results and validate the strategy.

Learn more: 5 questions to ask your financial advisor

If you are making regular retirement contributions, adding a modest taxable investment program is a wise addition to your wealth plan. Whether you opt for professional help or independent investing, learning about asset types and allocations will make your wealth journey more rewarding — and potentially, more profitable.

On December 18, the Federal Open Market Committee (FOMC) lowered its benchmark interest rate by 25 basis points or 0.25%, to a range of 4.25% to 4.50%. The move follows a 50-basis-point reduction in September and a 25-basis-point reduction in October.

The cut was expected by investors based on Fed cues earlier in the year. The committee adjusts interest rates in part to encourage a long-term inflation rate near 2%. After three years of inflation above 3%, the rate of price increases fell to 2.4% in September 2024 before rising to 2.7% in November.

The Fed also indicated there would likely be only two rate reductions next year rather than four as previously predicted. The more conservative approach is prompted by the recent uptick in inflation and uncertainty over the outcomes of President-elect Trump’s policies.

The big question investors are asking is how these lower rates could affect their portfolios and investment strategies. Let's provide answers with a closer look at how the stock market typically responds to falling interest rates.

Latest news: Cautious Fed holds rates steady with Trump unknowns looming over outlook

When the Fed cuts interest rates, banks lower the rates they charge on loans made to their customers. On existing variable-rate debt, the reductions are immediate. In this case, business and consumer borrowers quickly benefit from lower ongoing interest expenses. New fixed-rate loans also get cheaper, but existing fixed-rate borrowings are not affected. Fed rate cuts can, however, create opportunities to refinance fixed-rate loans at lower interest rates.

In short, rate cuts lower the cost of borrowing. Cheaper debt is usually good for business, but the reason for the rate reduction influences how corporate leaders and investors respond.

If the Fed lowers rates because inflation is slowing, the response should be positive. Businesses are likely to pursue growth more aggressively. Investors, expecting higher earnings ahead, may funnel more capital into the stock market. This can push stock prices higher.

Lower rates can negatively affect the stock market when they are prompted by an economic slowdown. When the economic outlook is uncertain, corporate leaders and investors can be more cautious about investing in growth.

According to Robert R. Johnson, CEO and chair of active index strategy developer Economic Index Associates, "historically speaking, equities perform substantially better when the Fed is lowering rates rather than when the Fed is raising rates."

Learn more: What is the Federal Reserve?

Investor expectations heavily influence stock prices. For this reason, the effects of a rate change usually begin well before the Fed acts.

When investors expect a rate reduction and the economic outlook is good, stock prices rise. Once the Fed implements the cut, the after-effects can be minimal. The exception is if the rate reduction is more or less aggressive than investors had expected. In that case, the market may shift again as investors adjust to new circumstances.

Learn more: Your step-by-step guide to investing

Johnson, who has extensively studied how the Fed's policies affect stock market returns, identifies the best-performing sectors when interest rates are falling as autos, apparel, and retail.

Johnson also sees opportunity in real estate investment trusts or REITs, particularly mortgage REITs. "With rates expected to continue to fall in 2024 and beyond, both equity REITs and mortgage REITs could be attractive investments," Johnson said.

Learn more: How to invest in real estate: 7 ways to get started

David Russell, global head of market strategy at trading platform Tradestation, expects lower rates to benefit cruise ship operators and airlines. "They're economically sensitive and have significant debt loads," Russell said. "Lower inflation will help their profitability, while lower rates could reduce their borrowing costs."

To summarize, lower interest rates are particularly good for real estate values and companies that rely heavily on debt or discretionary consumer spending.

Investors routinely adjust their holdings and trading behaviors according to their economic outlook. This is evident in the market movements that follow reports on inflation, jobs, and gross domestic product.

Learn more: Jobs, inflation, and the Fed: How they're all related

As an example, the S&P 500 experienced a single-day decline of 3% in early August 2024 after a disappointing July jobs report sparked recession worries.

Market shifts prompted by investor-sentiment trends can encourage many to wonder what moves they should be making ahead of Fed-rate actions. The right answer depends on the investor's timeline and strategy.

Learn more: When is the Fed’s next meeting?

Investors who need to maximize income or growth within a relatively short timeline may see the opportunity to adjust holdings according to the interest rate climate.

Commonly, this involves shifting exposure between stocks and bonds. Bonds are favored when interest rates are rising, while stocks become popular as interest rates fall.

On the other hand, long-term investors with high-quality, diversified portfolios may want to avoid big changes in response to rate adjustments. Overhauling a portfolio based on temporary conditions can easily undermine results over time.

Lane Martinsen, founder and CEO of Martinsen Wealth Management LLC, describes the dangers of making short-term decisions for long-term portfolios.

"Reacting to rate changes can lead to emotional decision-making, which can harm long-term performance," Martinsen said. "Frequent buying and selling to 'time' the market often results in higher costs, taxes, and missed growth opportunities."

Long-term investors might instead rely on changing economic conditions to prompt periodic reviews of their portfolio composition or asset allocation. If the allocation is performing and the risk profile is acceptable, few to no adjustments are needed.

Still, a proven allocation strategy may allow for small changes to improve performance as interest rates evolve. In this scenario, Johnson recommends adjusting sector exposure.

Specifically, when interest rates are expected to drop over time, investors could reduce financial and utilities holdings while increasing exposure to autos, apparel, and retail — sectors that have historically shown strength in falling rate environments.

Investors can implement sector-based adjustments without changing their relative exposures to broader asset classes, such as stocks, bonds, and alternative assets. Doing so should keep the portfolio's risk and appreciation potential fairly stable, which is critical for long-term growth.

With fewer rate reductions now expected in 2025, any boost to earnings or bond prices next year will be more muted. There are also other, potentially offsetting, factors in play. Two to note are high valuations in the S&P 500 and unknown outcomes from any policy changes made by the new president. Major portfolio or strategy changes at this point could be premature. This may be the time for investors to focus on the long-term rather than chase uncertain gains.

​​Gold is a safe-haven asset, meaning it often increases in value when the economic outlook is uncertain. That behavior appeared in 2025, as gold surged to record highs amid trade tensions and geopolitical conflicts. In more predictable times, however, gold’s behavior can be less appealing. It pays no interest, and its value can remain flat for extended timeframes.

Effective gold investing requires knowing how to capitalize on its strengths and mitigate its weaknesses. The four-step gold investing process outlined here walks through key decision points to set you up for success.

Read more: What to know before buying gold, silver, or platinum from Costco

Gold has characteristics that differentiate it from stocks, bonds, and cash. Before you begin the investing process, you must understand pricing models and the distinct investing risks.

Gold has different levels of pricing. Three to know are the spot price, the spot price plus the gold premium, and the gold futures price.

Gold spot price. The gold spot price applies to physical gold, sold wholesale or as a raw material. The spot price represents the value of one troy ounce of pure physical gold for immediate delivery. A troy ounce is a precious metals measurement that’s slightly heavier than a standard ounce.

Gold spot price plus the gold premium. Finished gold, such as coins, bullion, or jewelry, is priced above the spot price. The markup on the spot price is known as the gold premium. It covers things like marketing and profits for dealers and refiners.

Gold futures price. The futures price applies to contracts between gold buyers and sellers. These contracts require the buyer and seller to trade gold for cash at a future date for a specified price. As with the spot price, the futures price represents one troy ounce of gold.

Like any investment, gold has risks. It can lose value after you buy it, in predictable and unpredictable ways. Gold can also underperform relative to other assets. This creates an opportunity cost issue – that is, your portfolio suffers because you have money invested in gold that could have been used to buy a more productive asset.

Investing in gold can also introduce fraud risk. The SEC regulates publicly traded gold investments, including gold-backed ETFs and gold mining stocks. The Commodity Futures Trading Commission oversees gold futures trading. But neither agency oversees physical gold transactions. Unfortunately, that creates space for gold-related scams. For example, dealers may take advantage of unsuspecting buyers by selling counterfeits or transacting at prices unrelated to market values.

Learn more: Thinking of buying gold? Here's what investors should watch for.

If you’re ready to begin the gold investing process, setting your goal is the first step. Defining why you’re investing is important with any new investment asset. Having a goal helps you make better decisions, especially when performance falls short of expectations. This is particularly true for alternative assets like gold that behave differently from stocks, bonds, and cash.

Three suitable investing goals for a gold position are:

Diversification into an asset that moves independently from stock prices. Gold's headlining characteristic is its ability to hold its value, or even appreciate when other assets are falling. Investors often use this behavior as a stabilizer. They rely on gold's strength in tenuous climates to offset limit unrealized losses in equities.

Protection against inflation-related loss of purchasing power. Gold’s reputation as a store of value also makes it a popular inflation hedge. In 2025, Morgan Stanley CIO Mike Wilson recommended a gold allocation for investors wanting protection from rising prices.

Backup source of value and wealth in an unlikely economic collapse. Because gold holds value, it can serve as a medium of exchange if the dollar collapses. In this respect, "gold is an insurance policy" against economic calamity, according to Scott Travers, author of The Coin Collector's Survival Manual and editor of "COINage" magazine.

Learn more: How to start investing in 2025: A step-by-step guide

Allocation is the composition of your portfolio across different types of assets, such as stocks, bonds, and gold. Setting a target allocation for each asset type helps you control risk over the long term. This is because asset values change over time. Stocks appreciate, for example. Unless you periodically rebalance your holdings to restore the target allocation, the appreciation can leave you over-concentrated in equities.

Travers recommends holding 5% to 15% of your net worth in gold. Other experts advise going as high as 20% if you are risk-tolerant. A review of gold's historic behavior in light of your risk appetite should help you identify the right allocation percentage.

Learn more: Track gold’s historical price here

Historically, gold has shown extended upcycles and downcycles. The precious metal was in a growth phase from 2009 to 2011. It then trended down, failing to set a new high for nine years.

The price of gold began rising again in the second half of 2023. This growth phase is fueled by central bank demand, a weaker U.S. dollar, geopolitical conflict, and an uncertain U.S. economic outlook. As of the fourth quarter of 2025, analysts remain bullish on gold as these factors persist.

Gold can drive strong portfolio gains, but the growth is not sustainable over the long-term. In the lackluster years for gold, your position will negatively impact your overall investment returns. If that feels problematic, a lower allocation percentage is more appropriate. On the other hand, you may be willing to accept gold's underperforming years so you can benefit more in the good years. In this case, you can target a higher percentage.

Yahoo Finance video: Gold investing: Why ETFs can be the best way to go

Remember, too, that your target allocation includes the value of the gold you already own. Travers recommends checking your jewelry box before buying more gold. Given gold's sharp rise in value over the past 12 months and more, your gold jewelry may be worth more than you think.

Travers warns against selling your jewelry to buy gold coins because you will pay dealer fees on both transactions.

Once you define your target gold allocation, you must choose a form of gold to hold. Four options are physical gold, gold mining stocks, gold ETFs, and gold futures contracts.

Physical gold includes jewelry, gold bars, and gold coins. The advantages of physical gold include:

Peace of mind. If you keep your physical gold at home, it is available to use as a medium of exchange in an economic emergency.

No added volatility. Gold mining stocks tend to rise and fall with gold prices, but business-related factors enhance their volatility.

Tax advantages available with gold IRAs. You can hold physical gold in a traditional or Roth gold IRA. These accounts typically charge storage, transaction, and other fees, but taxes on realized gains are deferred.

Learn more: Gold IRA: Benefits, risks, and how it differs from a traditional IRA

The disadvantages of physical gold include:

Risk of theft or loss. Physical gold must be properly secured. Whether you store it in your home or with a depository, gold can be stolen. In October 2024 , a federal jury found Robert Leroy Higgins guilty of fraud charges after $50 million worth of precious metal disappeared from his business, First State Depository.

Lower liquidity. Physical gold is less liquid than stocks or ETFs. To convert your gold to cash, you have to locate a dealer and pay a markup on the sale.

Owning shares in gold mining stocks provides indirect gold exposure. The advantages of mining stocks over physical gold include:

Greater liquidity. Large-cap gold mining stocks like Barrick Mining Corporation (B) and Franco-Nevada Corporation (FNV) generally enjoy a narrow bid-ask spread, which is a sign of liquidity. The bid-ask spread is the difference between what buyers will pay and what sellers will accept.

Easy to store. Stocks live in your brokerage account and do not consume physical space. In normal times, this is an advantage. In an economic catastrophe, this could be a disadvantage if brokers or the stock market are temporarily shut down.

Learn more: The top-performing companies in the gold industry

The disadvantages of gold mining stocks include:

Greater volatility. Since 2000, gold mining stocks have risen and fallen faster than gold spot prices. And in recent years, gold mining stocks have trended down even as gold has gained value.

No utility as a medium of exchange. Gold mining stocks can appreciate, but they have no direct utility as a medium of exchange.

Gold ETFs are funds that invest in gold mining stocks or physical gold. Their advantages include:

Easy to store. Like gold mining stocks, ETF shares are digital assets with no storage requirements.

Greater liquidity. Shares of the most popular gold ETFs, like SPDR Gold Shares (GLD), are heavily traded, which implies good liquidity.

Tied directly to gold prices. ETFs backed by physical gold can be less volatile than gold mining stocks or gold mining ETFs.

Two disadvantages of gold-backed ETFs over physical gold are:

Fund fees. Funds charge fees, which dilute returns over time. For context, the expense ratio of SPDR Gold Shares is 0.40%. This translates to $4 in fees annually for every $1,000 invested.

No utility as a medium of exchange. As with gold mining stocks, you probably cannot use ETF shares to trade for food in an economic emergency.

Gold futures are standardized contracts to purchase gold on a future date at a specific price. The contracts often represent 100 troy ounces.

Trading gold futures can be a diversification strategy, but it's more commonly associated with speculation and hedging. Speculators seek to profit from gold price changes without owning and storing the physical metal. Hedgers are usually regular gold buyers — like jewelry makers — who want to lock in prices to improve their financial visibility.

After a futures contract expires, you can settle it with cash or by taking physical delivery of the gold. A cash settlement involves a credit or debt for the contract's value at expiration. Physical delivery occurs at approved depositories with 100-ounce gold bars or three 1-kilo gold bars. Switzerland is a primary gold refining hub and major supplier of 100-ounce and 1-kilo gold bars to the U.S.

The advantages of gold futures are:

Leverage. You can control a large amount of gold with a low capital outlay.

Convenience. You don’t need to store physical gold to earn from its price changes.

The disadvantages of investing in gold futures are:

Risk. Leverage amplifies gains and losses, and gold can be an unpredictable asset.

Complexity. The complexity of futures contracts can be off-putting to many retail investors.

After selecting the size and form of your gold investment, consider your investment timeline as a final suitability check. Gold can be volatile. It has also demonstrated extended periods of decline. Those behaviors are not acceptable if your timeline is short. The risk is too great that gold's price will be down when you need to liquidate.

An extended holding period also provides greater potential for reaching your goals. As an example, hedging against stock market declines or inflation is a long-term effort. These outcomes will continue to be risks as long as you own stocks or cash deposits. Holding gold as insurance against an economic calamity requires you to keep the asset until you need it.

A small gold position can act as a stabilizer for your stock portfolio and your purchasing power. If you choose physical gold stored at home, it can also stand in as currency in the worst of economic crises. Just know that gold has underperformed stocks in the past, so choose your target allocation accordingly.

Tim Manni edited this article.