Dave Ramsey doesn’t advise purchasing gold as an investment – and doesn’t even own any outside of jewelry!
He believes precious metals to be poor investments, failing to protect you against inflation. While he may be correct in certain aspects, in others his analysis is flawed.
It’s not a good investment
Gold and other precious metals can make great additions to a portfolio, but they should never be the focal point. As these investments can be volatile and don’t pay dividends or interest, it should only comprise a portion of your overall holdings. You should also understand the complexity involved when including gold into your investment strategy.
Gold prices may make for exciting media coverage and speculation, but investing in something other than gold would provide greater long-term returns than owning physical gold itself.
Although gold may seem attractive as an investment vehicle, it’s wise to remember that this form of currency does not offer adequate returns. Instead, consider stocks or other investments with better returns so as to minimize costly commission fees and maximize returns.
It’s not a safe investment
Gold prices can be volatile and the costs associated with owning gold coins and bars can add up quickly. Furthermore, its returns do not keep pace with those seen from stocks and Treasury bills during periods of inflation. Gold has historically not proven an effective protection from economic crises or inflation over the long haul. It often sells as protection against economic crises; however, over time its performance in that role has lagged behind those seen elsewhere.
Gold does not generate passive income such as dividends or interest payments, making it less appealing than stocks in an environment when interest rates are increasing and cash and bonds provide safe haven investments with greater returns than gold can offer. Therefore, it’s wise to diversify your portfolio so as to get maximum return from gold investments and ensure enough income in retirement.
It’s not a good hedge against inflation
Gold has long been seen as a reliable protection against inflation risk; however, when looking at its historical performance data this claim becomes dubious.
Gold has not always proven itself an effective inflation hedge; investors who purchased it during the roaring inflation of the 1970s experienced declining purchasing power relative to other assets, including bonds.
Gold has performed poorly during periods of low inflation or deflation, making it hard to know what role it should play in a portfolio due to this discrepant outcome.
Gold can be costly to buy and store, prompting investors to look at other investments as an alternative such as TIPS. Although TIPS carry their own risks and aren’t considered safe-havens, they do offer enhanced returns, liquidity, diversification benefits and lower correlations to stocks and bonds which in turn reduce portfolio volatility.
It’s not a good medium of exchange
Gold can be an ideal long-term investment. Its rates remain consistent worldwide, offering steady returns. Furthermore, investing in gold provides you with protection from inflation.
Currency must have constant intrinsic value and stable purchasing power in order to serve as an effective medium of exchange, which explains why so many have long lamented the classical gold standard, which prevented exchange rate fluctuations; however, such policies tend to exacerbate business cycles and recessions.
Gold’s value doesn’t depreciate over time like stocks do and does not depend on any third party to maintain it, making it an excellent asset to own and pass down to future generations. Furthermore, it can easily be converted to cash when emergencies arise – another advantage.
