Gold is an increasingly attractive asset class for investors, as its low correlation to mainstream assets makes it useful as a volatility hedge.
Discover more of the advantages of owning gold by consulting a financial advisor. SmartAsset’s free tool connects you with verified advisors in your area.
1. It is a countercyclical investment
Gold’s popularity as an anticyclical investment increases during periods of inflation and banking uncertainty, while its price also tends to do better than stocks during economic downturns; six of eight major stock market crashes since 1970 saw its price increase.
Water can act as a diversifier to any portfolio and should be added for this reason alone.
Keep in mind, however, that gold does not pay dividends; therefore if you seek income from your investments then stocks would likely be better suited.
If you had purchased the S&P Composite index in 1970 and reinvested its dividends annually since, you would have seen an astonishing return of 68,430% over forty-three years! While gold may offer higher short term returns, stocks offer superior long-term wealth accumulation opportunities.
2. It is a store of value
Gold is an inherently valuable real asset with inherent worth, making it an excellent way to store wealth. Furthermore, its limited supply makes gold an appealing investment option when economic instability strikes and stock or bond values begin eroding – perfect when stocks or bonds decline significantly in value.
Over time, gold has proven itself an exceptional long-term performer compared to stocks and bonds; indeed, its value has quadrupled since 1980! Therefore, including it as part of your asset allocation is vitally important.
But investing in physical gold does have its drawbacks; it must be stored somewhere and must be protected with an official Gold IRA custodian who may incur extra costs. On the other hand, stock investments are easily transferred and traded, providing investors with more ways to diversify their portfolios with ease.
3. It is a hedge against inflation
Gold has long been seen as an effective hedge against inflation. Unfortunately, as it’s a commodity with fluctuating prices that rely heavily on investor sentiment and does not generate cash flow, investors will have to wait long periods of time before realizing profits from investing.
Stocks provide a steady income source while growing at a faster pace than the economy itself, as well as performing better during a recession than gold does.
Investors concerned with inflation should diversify their portfolio with Treasury Inflation-Protected Securities, stocks, real estate investment trusts and commodities like oil. Debt-based assets like bonds and mortgage-backed securities tend to underperform during a recession; to learn more about diversifying with precious metals contact Birch Gold today – they specialize in helping investors diversify their retirement investments with products like platinum and palladium.
4. It is a safe haven during a recession
Gold prices often appreciate during times of economic uncertainty and are seen as a haven by investors looking for security against possible recession. When recession threatens, investors seek ways to diversify their portfolio with reliable assets that will shield against financial turmoil.
Gold investments offer protection from inflation and stock market crashes, while also being an effective hedge against declining government currencies like the dollar. Not only can it protect savings against inflation and stock market crashes; gold can also provide cash flow. Stocks provide dividend payments which can either be reinvested in more stocks or taken as cash payments.
Gold investments do not offer the same returns as stocks due to their absence of dividends and compounding effects, making it more suitable for long-term wealth accumulation than short- to medium-term gains from stocks. However, investing in gold can still provide substantial long-term wealth accumulation potential but does not offer comparable short- to medium-term returns as those seen through stocks and equities investments.
