Why is Gold a Dumb Investment?
Gold has long been valued as an object with inherent worth, yet it doesn’t make an effective long-term investment due to lagging returns and inflation risks.
Instead of investing in gold bars directly, consider investing in companies that mine it instead. Mining businesses profit from rising prices while also increasing production levels.
It’s a speculative asset
Gold has long been revered and valued as an investment, whether as an insurance policy against inflation or even as currency. Yet despite all this attention and speculation surrounding it, gold remains an inferior investment due to one simple factor: gold doesn’t create anything – its worth depends on someone paying more in future – unlike investing in companies which produce products people want.
At times when stocks are underperforming gold, their value can often outstrip that of its commodity equivalent. Still, many investors may still fear an uncertain economy and opt to purchase coins or bullion instead – forgetting that history shows otherwise! Both long and short term returns show the broader market outperforming its predecessor by an overwhelming margin.
It’s a store of value
Gold is commonly held as an investment. People hold it because they perceive its intrinsic worth; however, due to being a volatile speculative asset it could fluctuate significantly in value over time and therefore might not provide optimal protection of wealth.
Gold doesn’t generate dividends and interest like stocks do; therefore it doesn’t benefit from tax deferral like stocks and mutual funds do; additionally it requires storage costs as well as security fees to secure.
Gold investors tend to purchase it during times of economic or political distress, when their economies appear unstable or when there are concerns that currencies could collapse or collapse entirely. Rising interest rates make gold less appealing as an investment and its returns lag those of most major assets.
It’s a commodity
Many investors utilize gold investments as an effective diversifier and hedge against inflation, yet gold does not generate as many real returns compared to stocks and even Treasury bills. Furthermore, there is always the risk that its price might decrease should the dollar weaken and lead to economic instability.
Gold is an unproductive asset that does not generate earnings for its investors and requires storage costs and may even be stolen by unscrupulous parties, so investing in it would not be advised. Instead, investors would do better investing in stocks which offer much higher real returns compared to gold; and should also avoid investing in riskier speculative assets such as gold or bonds.
It’s a hedge against inflation
Gold is often misunderstood as an inflation hedge, but that’s simply not the case. Gold only has limited decorative and industrial uses and its supply is finite – meaning its price will fluctuate with supply and demand and its long-term return is dismal when compared with investments such as stocks or bonds.
Some may still be tempted to view gold as an insurance policy against the decline of the dollar, but this would be misguided. Gold doesn’t protect against inflation like fiat money does – its prices tend to decline during times of high inflation while also having a negative correlation. Conversely, during deflationary times gold tends to appreciate in value which should provide good signals to investors.
It’s a physical asset
Gold is a physical asset with storage and security costs associated with it, and criminals are known to try and steal it. Furthermore, its decorative and industrial uses are limited by its current supply.
Gold does not generate income like stocks and bonds do, which provide dividends or interest payments; thus it cannot be included as tax deductible in an IRA account.
Ultimately, investing in gold is not wise; its value is determined by fear-induced speculation, while there are far better returns elsewhere. Furthermore, gold does not serve as an effective hedge against inflation: over the long-term its buying power has actually decreased while stocks have maintained their purchasing power against inflation over the last 30 years – outperforming gold on nearly every standard measurement measure during that period.