The Dangers of Only Investing in Gold

Gold can be an extremely valuable investment asset, particularly during times of economic instability. But gold shouldn’t be your sole focus when building an investment portfolio.

Investing in gold comes with its own set of disadvantages, including storage costs for physical gold bars and coins, capital gains taxes, and potential performance lag. Let’s examine these disadvantages further.

1. It’s Not a Passive Income Source

Physical gold differs from stocks, bonds and even cash (when held through instruments like certificates of deposit) in that it does not offer passive income in the form of dividends or interest payments; this can result in performance lag over time for investment portfolios where significant portions are allocated to gold investments.

Physical gold comes with storage and insurance costs that detract from its overall value, making it less desirable as an investment vehicle for steady income or retirement planning.

Investors can sidestep these drawbacks by investing indirectly, such as through buying shares in gold mining companies or ETFs that hold physical and paper gold-backed assets. But it is still wise to assess all available options carefully, to make sure they meet both your financial goals and risk tolerance. Request our free Gold Investor Kit for more information about adding precious metals into your financial plan – the recommended level should not exceed 5-10% to get all their stabilizing benefits while leaving room for faster-growth assets that may increase your nest egg faster.

2. It’s Not a Diversified Investment

Gold has earned itself a strong reputation as an inflation hedge and safe haven asset, yet may prove too risky for long-term growth investors. Therefore, it’s wise to evaluate any risks of over-allocating to gold as part of an overall portfolio strategy and diversify with other assets as well.

Physical gold coins or bars may be the go-to investment vehicle, but there are other investment vehicles such as stocks, mutual funds and exchange-traded funds (ETFs) to consider as well. Each of these options comes with their own set of advantages and disadvantages so it’s wise to thoroughly assess your goals prior to making any decisions.

Keep in mind that gold does not produce passive income like dividends or interest payments, so it may not suit investors who rely on regular cash flow for retirement savings or other goals. This could be seen as a drawback of adding gold to one’s portfolio – particularly those trying to save for retirement or other financial goals.

3. It’s Not a Tax-Free Investment

When investing in gold, you must keep tax implications in mind. No matter whether you purchase physical coins and bars or gold-backed paper assets such as ETFs and shares, storage fees, premiums and capital gains taxes will apply when selling them off.

As mentioned above, this can significantly decrease your profit. Furthermore, be mindful that the IRS considers precious metals to be collectibles rather than investments – meaning any profits earned when selling gold will likely incur capital gains taxes that are higher than 20% for investment-grade assets.

At the core of it all lies a crucial point: gold should not exceed 5-to-10% of your overall portfolio. Too much gold in your portfolio could limit long-term price appreciation of other asset classes, and thus diversification with professional advice should be sought out as soon as possible.

4. It’s Not a Long-Term Investment

Financial planning dictates that one should never put all their eggs in one basket. Gold provides some protection by remaining uncorrelated to stock and bond markets, and many people use it to diversify their portfolios.

Though gold may seem an attractive long-term investment option, its storage costs could eat into returns significantly and its lack of passive income such as dividends or interest payments has you subject to capital gains taxes when selling it off.

Problematically, for most investors the primary goal of investing is passive income that can be reinvested back into investments or used to pay bills. Unfortunately, gold does not produce this form of passive income – instead relying on “greater fool theory” which states that someone may purchase your gold later for more than it cost you initially.

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.

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