Why Invest In Gold?

There are numerous options in the investing world for potential investors regardless of his or her experience level.   Of course, there are plenty of investment options to choose from.  Stocks, bonds, ETFs and mutual funds are the main investment vehicles that come to mind. Commodities such as natural gas and gasoline can be invested in as well.  However, investors can also choose to invest in the precious metals market.

Commodities such as copper, palladium and silver can be invested in.  However, the most popular commodity to invest in is gold.

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Throughout history, gold has always played a vital role as an investment.  Particular countries and regions around the world have used gold as a currency standard in the past.   The U.S also adopted the gold standard.  However, the United States would rid itself of this currency standard in 1971.

Now, the rise and/or fall of gold is dependent on overall demand of the metal.   In this piece, we will seek to answer the question “?”   We will break down the advantages and disadvantages that one should expect when buying gold an investment.

Advantages of Investing in Gold

There is a significant amount of benefits that comes with investing in gold.   First, gold is a great option for diversifying one’s investment portfolio.  Gold is a great boost to one’s portfolio due to its lack of direct correlation with other traditional asset classes such as bonds and real estate With the significant number of investment options for gold, it is unlikely that experienced investors would be unaware of how to buy gold as an investment.

In addition to investing in gold through gold bars and coins, individuals can invest in gold through the vehicle of futures and options.  Of course, investors have the option of investing in gold through the means of stocks and ETFS.  If one is interested in pursuing gold investments, he or she must understand how to invest in gold stocks.

Two gold stocks that are worth their weight in gold are Royal Gold (RGLD) and Barrick Gold  (BGLD). Royal Gold (RGLD) has an 88.21% YTD Return. On the other hand, Barrick Gold has a 99.05% YTD Return.  Both stocks heavily outpace the YTD Return of the Morningstar Gold Category.

In terms of gold ETFS, the SPDR Gold Trust (GLD) is one of the best.  It has been given an A rating by ETF.com.  The SPDR Gold Trust has a 11.62% YTD Return.

gold

Through the years, gold has served as a buffer against the rising cost of inflation over recent decades.  Furthermore, gold has served as a safety net for those seeking refuge when the U.S dollar weakens.

Lastly, gold has served as a valuable commodity to invest in during times of global tension and uncertainty.  It is often referred to as the “crisis commodity”.

Disadvantages of Investing in Gold

I’m sure many of you have heard of the phrase “Everything that Glitters Isn’t Gold”.  There are some disadvantages to having investments in this precious metal.

First of all, gold has a pretty bad historical return in spite of its relative safety as an investment.   An article was written in ‘The College Investor’ a few years ago that compared the historical returns of gold vs the historical returns of bonds and stocks after 200 years with a $10,000 investment in each asset class. Here are the results:

Stocks had amassed 5.6 billion dollars. Bonds had amassed 8 million dollars.

On the other hand, gold was worth less than $30,000.   If you are looking for gold to generate long-term returns, you are probably looking in the wrong place.

Gold does not provide any regular income such as dividends to investors.  This is not the case for mutual funds and stocks.

Additionally, there is a tax disadvantage to owning gold.  Gold has a 28% capital gains tax rate, which is higher than the tax rate for ordinary investments.  In addition, investors can incur high costs from storage and insurance costs that come with keeping gold.

Should You Invest in Gold?

Processed with MOLDIV

Processed with MOLDIV

The answer to the question “Is Gold a Good Investment” is dependent on one’s investment tolerance and strategy. It is not a must-have for most investor types. In fact, most investors hate owning gold because it does not generate regular income.

Moderate and aggressive investors can get along well provided one has the appropriate mix of stocks and bonds for his or her risk tolerance.  However, there are experts who suggest having no more than 5% of gold in a portfolio.

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One response to “Why Invest In Gold?”

  1. […] is determine what minerals you’re interested in investing in. There are a variety to choose from: gold, palladium, and silver just to name a few. A great place to find information on these minerals is […]