Is Gold a Terrible Investment?
Gold has long been considered an investment staple. Many see gold as a safe haven during times of political and economic unease.
Gold may not be your ideal investment choice – whether it be inflation fears or diversifying your portfolio, gold might not be.
Gold has always stirred strong reactions, and it can be challenging to disabuse people of their beliefs about its value as an investment symbol for millennia. But it’s important to keep in mind that there are better alternatives for diversification and protection from equity market volatility than investing in gold itself.
Many investors buy gold as an insurance policy against financial or political crises; these individuals are commonly known as “gold bugs” and make up a substantial share of the physical gold market.
But gold has never shown to deliver these benefits; in fact, it does a poor job at protecting capital and providing income over long periods of time. Warren Buffett believes you should invest in businesses that produce products or services, generate consistent profits over time, and have potential to grow those profits over time. Investing in such assets may more effectively create real wealth than an intangible commodity such as gold.
Gold offers no dividend, is expensive to buy and store, and heavily taxed; investing in gold may lead to financial inertia at best and should only ever be purchased and sold at later dates in order to break even or at worst make you break even when sold back into circulation later. Furthermore, it provides no protection against currency inflation; real estate or stocks and shares ISAs offer better ways of protecting savings against currency inflation.
Warren Buffett’s position on gold may be controversial, yet his arguments are sound. He believes that investing in productive assets like farmland or businesses offers superior returns than gold which offers no returns; instead he compares gold to a pile of rocks which remains stagnant over time while investments like farms or companies compound exponentially faster. Furthermore, Buffett notes that investing in gold requires no work whatsoever and does not offer protection from geopolitical events or economic uncertainty – yet many still consider gold an invaluable investment option.
Gold can be an expensive purchase, and even less so to store securely. Gold is a precious material that requires secure vault storage at costs between $30-$200 annually depending on its size; additionally, transactions often include additional spread charges when buying and selling gold.
Gold has outpaced inflation during times of economic strain, making it an effective hedge against ongoing inflation and an attractive haven during bear markets.
Gold can provide an attractive alternative to holding physical cash or placing your savings into an ISA, which depreciate in value due to inflation (currently approximately 1.79% here in the UK). Plus, its value often remains stable during financial ups and downs.
It’s not backed by anything
Gold can serve as an excellent diversifier, protecting wealth during times of political and economic instability. But for most investors, stocks or other assets that provide higher return rates would likely prove more suitable investments. Not only are stocks liquidable quickly; they also give you multiple choices regarding environmental and social responsibility when it comes time to choosing which company’s shares to buy from.
At times of financial crises, many people turn to gold to protect their savings and investments. While it can be difficult to convince someone of its irrationality or low returns, it’s worth remembering that many believe in its “true value,” part of their culture and tradition; as such it can be hard for them to change their beliefs; regardless of evidence otherwise they likely won’t stop investing in gold anytime soon.
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