Why You Should Not Invest in Gold
Gold has long been seen as a symbol of wealth and status – from ancient Egyptian pharaohs to California’s “gold rush”. Yet purchasing physical bullion or ETFs may not make financial sense for everyone.
First is storage cost; bullion is expensive to store and dealers often add their own profit margins into its price, not to mention it doesn’t provide dividends or interest payments.
1. It is a speculative investment
Gold has long been seen as an attractive investment option during times of economic unease and global conflict, often rising with economic turmoil or in response to natural disasters. Gold can serve as a safe haven in these volatile times; however, investors should keep in mind there are other means available to them that provide diversification without endangering their financial future through gold investments.
Physical gold incurs high storage costs because it must be stored securely at home or bank to prevent theft and is difficult to transport, limiting how much can be invested.
Gold’s main disadvantage for investors seeking to grow wealth lies in its inability to provide income. Treasury bonds and dividend-paying stocks may offer better solutions, as these can generate consistent sources of income while simultaneously growing investments.
2. It is a store of value
Gold is often seen as a safe haven in times of inflationary pressures as its value doesn’t depreciate quickly and it can easily be exchanged for other goods. Furthermore, investors should keep in mind that physical gold requires large upfront investments that may not suit individuals with limited budgets.
Gold cannot be stored safely at home due to theft risk; investors must pay storage and insurance fees separately. Furthermore, its price fluctuates rapidly from day to day making its future value hard to predict.
Gold coins should represent only 5- 15% of your portfolio, though they provide an ideal hedge against inflation and should not be the main source of your income. Instead, investing in stocks or other instruments that provide higher long-term returns would likely provide better results.
3. It is an unproductive asset
Gold is an unproductive asset as it doesn’t produce income, forcing investors to incur storage and insurance fees, capital gains taxes, and possibly experience performance lag relative to other investments in their portfolio.
Gold may seem like an attractive asset, but it’s essential to remember that its value depends on speculation rather than investment. Since gold does not serve any industrial or decorative functions, its price depends solely on how much people will pay for it.
Buffett does not advocate investing in gold as an asset class. He prefers productive assets like stocks that pay dividends and increase in value over time, such as stocks. As a long-term investor with an eye for compound growth, Buffett sees stocks and income-producing real estate as strong vehicles of growth whereas gold lacks productivity and should not comprise too much of your portfolio.
4. It is a risky investment
Gold has many positive attributes, yet doesn’t always perform as an investment. While its price can rally during times of economic instability and anxiety, this doesn’t always translate to long-term gains for investors. Plus, dividend-paying stocks or bond yields provide investors with much needed income streams.
Cost of buying and storing gold can eat into returns, making it important to factor this into the equation when assessing whether adding this asset to your portfolio would make sense.
If you decide to invest in precious metals, it’s advisable to allocate only 5-15% of your portfolio towards this asset class. Take note of advertisements offering high returns with minimal risk; avoid companies offering storage services; purchase and store bullion yourself to protect against theft – one way is with an IRA account which keeps gold coins secure in a vault.
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