Why is Gold a Dumb Investment?
Gold is an unproductive asset that does not generate any sort of income, unlike shares which pay dividends or property which appreciates over time. Storing physical gold may also be costly and susceptible to theft.
Despite these disadvantages, many individuals continue to hold onto gold as an investment asset. Why?
It’s a Social Construct
Gold has long been used as a form of protection, serving as a store of value against wars and economic strife. Some even view gold as an insurance policy against financial collapse or political unrest.
Gold may offer some disadvantages as an investment option; one being its lack of return. Even buying shares in a gold mining/producing company won’t bring you higher than average returns – though these will vary widely between individual shares and producer company stocks.
Gold is a social construct. Unlike rocks, water or air, its value depends on whether other people agree it has one; this same principle holds for countries, borders, types of dogs and who can marry whom.
It’s Not a Good Hedge Against Inflation
Gold has long been considered an asset that protects against inflation. When prices of goods and services increase due to inflation, your dollar becomes worth less. Gold may serve as a diversifying investment against inflation; however, other assets exist that can help safeguard wealth while increasing purchasing power.
Gold does not produce income and, unlike stocks or bonds, spending your money on it won’t grow over time; it will simply sit as pile of metal no matter how long you keep holding onto it. Real estate and stocks may provide steady dividends or interest payments that increase its intrinsic value over time.
Storage costs of physical gold can add up quickly and diminish overall returns. From home fireproof safes to bank safety deposit boxes, any means you use for storage costs will incur costs that eat away at returns and reduce returns over time.
It’s Not a Good Investment
Gold is not a productive asset like stocks or bonds that allow investors to reinvest earnings back into company growth, or real estate that can be developed and enhanced over time, such as redevelopment projects that can increase its value. Instead, gold is simply dug up, refined and transformed into stuff that mostly sits around.
Investment property can also be an ineffective defense against inflation. While its success at protecting against rising prices has varied throughout history, recent years have proven otherwise and been particularly disappointing when inflation hit four-decade highs.
Simply stated, gold as an investment should generally be avoided unless it serves to diversify your portfolio or hedge against inflation. Otherwise, investing your money wisely through real estate, stocks, or mutual funds would yield better results and might save time with price fluctuations of precious metals vs. real estate investments or mutual funds that provide greater returns. Request your free information kit now to learn how to put your savings to work!
It’s Not a Good Way to Prepare for Economic Uncertainty
At times of economic uncertainty, people seek secure assets to invest in. Gold buggers take full advantage of this fearful sentiment by selling coins, bullion or shares in mining companies as investments with which they promise great returns.
Reminding people that gold offers only modest rates of return is likely to have no effect; those who hold onto it as an anti-recession hedge remain stubborn in their faith in its potential benefits. A better way to prepare for recession may be investing in stocks, bonds and other assets with higher rates of return during recessionary times; they could provide some protection from market crashes as well as inflation without taking up valuable storage space like gold does.
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