Is Gold a Terrible Investment?
Gold has long been seen as a go-to investment option, particularly among those seeking to diversify their portfolio or protect against inflation. But is gold really worthwhile as an asset class?
Anyone who owns physical gold or a gold fund for any significant period will quickly come to realize two truths about its returns: they consistently trail those of stocks, and it does not act as an effective hedge against inflation.
Costco’s Gold Ingots Are a Terrible Investment
Gold can be an attractive investment choice because its value has historically appreciated over time. But there are other more suitable means of diversifying your portfolio; such as purchasing shares of an ETF online or even investing in Bitcoin.
Gold ingots are non-returnable purchases, meaning once made they cannot be returned. You will also incur an increased markup to cover costs similar to purchasing or selling real estate.
Many consumers fear a financial crisis and gold is often used as a hedge against it. According to Money Metals’ online bullion exchange, precious metals have experienced increased demand during times of economic unease; gold’s independence from any government or central bank makes it less susceptible to inflation or crises, making it suitable for use as an inflation hedge.
It’s Not a Good Hedge Against Inflation
Gold has often been seen as an investment tool against inflation, due to its global store of value status and non-devaluing ability. But investors should look more closely at gold’s track record as an inflation hedge – during recent years of high inflation rates it actually generated negative real returns.
Investors concerned with high prices should look to asset classes such as stocks, Treasury inflation-protected securities (known as TIPS) and real estate investment trusts for protection during periods of higher inflation. Gold’s mixed track record makes it ineffective as an inflation hedge or diversifier according to Amy Arnott of Morningstar Senior Analyst Services.
Are You Wanting to Protect Against Inflation with Smart Investments? Consult With A Financial Advisor Now
It’s Not a Good Investment During a Recession
Gold has long been seen as a safe haven investment and hedge against inflation, yet when economies go into recession it becomes harder for gold to serve this function effectively.
Gold doesn’t pay interest, while owning shares in a company grants access to long-term free cash flow used by businesses to generate profit; that profit can then either be distributed as dividends or kept on balance sheets as retained earnings.
An investment that provides interest and adds real value to your finances is an effective way to protect against a downturn. That is why it is recommended that investors avoid purchasing physical gold directly and invest instead in gold-backed mutual funds or exchange-traded funds; if necessary, store any physical gold safely away from places easily accessible by thieves who could get hold of your investment quickly and steal it all!
It’s Not a Good Investment During a Stock Market Crash
Gold has long been touted as an investment safe haven during a stock market crash. While gold often does hold its value or even increase during these times, its price can fluctuate based on global demand, production costs, geopolitical tensions, interest rates set by central banks and many other factors.
Be mindful that gold is not an income-producing asset like real estate or oil are. Where real estate and oil value increases due to need/supply and production processes, gold does not generate income on its own.
History should play an integral part in making investment decisions. Over time, stocks have outshone gold and other assets, which should dissuade anyone who thinks jumping on the gold bandwagon would be wise; investors who focus on long-term returns are more likely to experience success with their investments.
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