Is Gold a Better Investment Than the S&P 500?

Gold has long been considered an excellent long-term investment and safe haven during turbulent markets, but in times of economic unpredictability many investors turn to it for respite. Proponents may tout gold’s long-term potential while others see it as an inflation hedge or safe haven.

But is gold better than the S&P 500? In this article we’ll examine both assets to understand their unique relationship.

1. It’s a store of value

Gold can serve as an invaluable store of value during times of economic instability and inflationary pressure, providing an ideal addition to a diverse portfolio.

However, real estate does not offer the potential for high returns as more risky assets like stocks do and it does not produce any income, making it less appealing for those seeking consistent returns.

Ultimately, your choice between investing in the S&P 500 or gold depends on your financial goals and risk tolerance. Many investors hold both to build a more diverse portfolio.

2. It’s a hedge

Many gold buyers view gold as an inflation hedge and way to diversify their portfolio during uncertain economic times, however its real returns over standardized periods indicate otherwise. Over the last three years when inflation reached four-decade highs and gold’s real return was negative.

As Treasuries have outshone gold over time, investing in both becomes less compelling as an inflation hedge. Still, some experts recommend diversifying your portfolio with both stocks and gold investments for optimal returns; how you decide whether or not to include gold depends upon your financial goals, risk tolerance level and time horizon; when looking at long-term investing strategies the S&P 500 usually outperforms gold; however if short-term investors focus on volatile market conditions then gold may offer greater returns than expected.

3. It’s a safe haven

Some investors may use gold as an inflation hedge; however, its track record in this regard has been mixed. When measured across multiple standardized periods (Figure 3), stocks usually outshone gold on average (see figure 4).

Gold has long been seen as an anti-inflationary hedge, but no longer provides that level of protection in uncertain times. While its low correlation with stocks makes it an asset worthy of inclusion as part of a diversified commodity portfolio, its higher risk increases its utility compared to other investments like US small value stocks with lower standard deviation.

When considering your investment options between gold and the S&P 500, it’s essential to assess your goals. If your aim is to build wealth over time, the latter offers better returns; but if diversifying with something that provides security in a volatile economy is your goal, gold may provide greater returns.

4. It’s a diversifier

Investors frequently consider gold to be an ideal diversifier and hold it in their portfolios during times of economic instability, but their reasoning often relies on two exceptional performance periods that do not reveal its true potential.

Gold does not generate income in the same way that stocks and bonds do; nor can its dividends generate any cashflow, nor does it have low storage or insurance costs; making the decision to add physical gold as part of a portfolio an important one.

Gold has historically proven itself useful during times of economic distress when other assets such as stocks falter. Although not guaranteed to perform this way, adding gold to an investment portfolio during volatile market periods has proven itself effective as a diversifier. Even with these drawbacks, adding gold can easily and affordably be done via exchange-traded funds (ETFs).

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

Categorised in: