Is Gold a Terrible Investment?

Gold has long been associated with pirate treasure, microcircuit components, astronaut visor coatings and the ultimate symbol of wealth.

However, if you’re seeking an investment opportunity instead, there may be better alternatives than gold. Over most standardized periods, stocks have proven far superior to gold as an inflation hedge.

It’s a store of value

Gold is an invaluable form of value storage that serves both as an inflation hedge and stock market diversifier. However, as it does not generate any income and may experience price fluctuations over time. Therefore, before making a decision about investing in precious metals it is wise to consult a financial advisor who can offer an impartial opinion about whether gold should fit in your portfolio.

As a long-term investment, gold has historically underperformed stocks and stock funds; however, results vary depending on the timeframe studied. Over longer timeframes, it has outshone S&P 500 while on shorter timescales stocks have proven more resilient due to lower risks associated with owning gold.

It’s a hedge against inflation

Gold has long been seen as an inflation hedge due to its tendency of rising when purchasing power decreases with fiat currencies like dollars. However, this relationship may not always hold; for example, high inflation in the 1970s caused gold prices to spike while stocks tumbled dramatically.

Physical gold requires its own costs to consider, including storage and insurance fees as well as commissions that could total 5 to 6% when selling to an exchange. All these expenses add up over time and diminish your total return.

Mills recommends allocating between 5-11% of his clients’ portfolios to gold investments, but before making your final decision it is essential that you consider your goals, risk tolerance and overall investment strategy before determining if gold fits with them. To discover more about adding this asset class to your portfolio contact one of the many financial advisors today!

It’s a store of wealth

Gold has long been considered an appealing and secure store of wealth for investors who believe it can provide long-term stability. Gold’s durability makes it suitable for use in industries including dentistry and electrical engineering as well as helping to stabilize monetary systems.

Investment in gold may not be wise for those seeking returns, however. Gold prices have historically had an adverse correlation to stocks; additionally, purchasing and storing physical gold can be expensive and reduce returns even when its price rises significantly.

Investors should also consider the additional expenses of owning gold at home, such as transportation and insurance premiums, in their calculations of returns; additionally, dealers charge a margin when buying and selling. All these costs can substantially erode real returns; to help make an informed decision it is advisable to consult a financial advisor when evaluating whether precious metals would make sense for your portfolio.

It’s a diversifier

Gold tends to outperform stocks and bonds during times of financial turbulence. Furthermore, its low correlation with other asset classes makes it an effective diversifier; but it must be remembered that gold should not be seen as an alternative investment opportunity to stocks or bonds.

Gold investments can be beneficial, but only comprise five to 10 percent of your portfolio. You can do this either through physical purchases or funds invested in gold; though in both instances commissions could reduce profits significantly.

Gold’s value depends on market demand, often driven by economic insecurity. Although not an inflation hedge, gold can act as a safe store of value to reduce risk in an otherwise risky portfolio. Although not generating any income itself, gold provides diversification benefits for investors with long-term horizons as it protects against currency fluctuations and changes to monetary policy.


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