Is Gold a Terrible Investment?
Precious metals have long been seen as safe haven investments during times of economic instability; however, their performance doesn’t measure up to that of stocks or other asset classes.
Gold doesn’t pay dividends and its prices often fluctuate wildly; therefore, before considering investing in it it’s wise to educate yourself on its potential pitfalls first.
It’s Easy to Buy
Gold can be purchased in many forms, from coins and bars to futures contracts and ETFs or mutual funds, which investors can trade on the same exchanges where stocks trade. Physical gold, however, can be difficult to sell at current prices without resorting to selling it through pawnshops or dealers who charge a margin fee for service.
Before making your investment decision about gold, carefully consider your goals, risk tolerance and time horizon. Although including some gold in your portfolio could provide diversification benefits that other asset classes lack, namely stocks and bonds – beware if investing too heavily into one area – overdoing it could threaten long-term gains from these sources as well. It’s also wise not to put all your eggs in one basket!
It’s Not a Safe Haven
Gold has long been seen as a symbol of wealth and currency, though as an investment asset it comes with certain risks and challenges. Notably, this includes no passive income such as dividends or interest and must therefore wait until its sale in order to reap any financial gain from your holdings. Furthermore, physical gold storage poses its own set of obstacles.
Many investors turn to gold as an inflation hedge, believing its price will respond accordingly in response to inflation worries or geopolitical unease. Gold’s popularity can serve as an excellent hedge against such inflationary risks.
Gold can also provide investors with stability because its value does not depreciate like paper investments do; however, its return can often be low when compared with other investments that offer interest returns and diversifying your portfolio with gold isn’t always effective either. Before considering gold as an option for their portfolio investment objectives and time horizon should be carefully taken into consideration.
It’s Volatile
Gold has long been considered an asset that provides shelter in times of economic strain; its prices may even increase during times of turbulence. Yet this surge may only last briefly.
Gold can be volatile like other commodities like crude oil and wheat; its price fluctuations make it a risky investment at times; yet over the longer run it has proven its stability as an asset store of value.
Investors invest in gold to protect themselves against an uncertain dollar or geopolitical unrest, yet its price can fluctuate based on market sentiment rather than economic fundamentals.
Physical gold investors tend to pay a premium when purchasing and selling it, and given its lack of interest or dividends it makes for an unwise addition to an investment portfolio. Instead, consider diversification with gold IRAs or other gold-backed investments which provide protection without market fluctuations.
It’s Not a Good Hedge Against Inflation
Gold has long been touted as an effective defense against inflation. When prices increase, investors look for assets which grow in value alongside this rise – such as gold.
But looking closer at gold’s history of inflation reveals otherwise. From 1980-1984, its prices fell an average of 10% annually and considerably outshone real estate, commodities, and the S&P 500 during this time.
If you want to protect your purchasing power against increasing prices, a financial advisor can help you create a diversified portfolio and safeguard against unexpected events. Find an advisor today.
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