Gold has long been considered an inflation-proof investment that provides portfolio diversification. Yet when examined over an extended timeframe, its performance has lagged the market significantly.
Retail giant Costco is selling physical gold ingots to its millions of club members as an investment option, but is this wise?
It’s a social construct
Gold has long been revered as an excellent way to protect against inflation; however, many underestimate its true worth as an investment vehicle. Before diving in headfirst and investing in it yourself, it is vital that you gain a full understanding of how the gold market operates as each factor must be taken into consideration before making an informed decision.
Gold has long been seen as an asset, so many believe its worth will continue to appreciate over time. Ultimately, though, whether gold is suitable as an investment depends on your individual goals – for best results it would be best to consult an investment expert beforehand.
Some investors use gold as an asset diversifier in their portfolio. Due to its unique properties, gold makes for an invaluable investment asset during a volatile economic climate; its absence of credit risk and counterparty risk makes it a better alternative than conventional bonds; in addition, gold’s high liquidity makes buying or selling it easy.
It’s an unproductive asset
Gold does not generate cash flows and incurs significant storage and insurance costs, nor can it serve as an effective hedge against inflation. Furthermore, over the long haul it usually trails stocks and other asset classes when it comes to consistent returns – so diversifying investments is key if you want consistent returns from gold investments.
Gold has long been seen as a safe haven during global economic uncertainty. Many investors look to gold for protection from inflation or currency decline; however, there may be other considerations why you may wish to avoid investing in this precious metal.
Gold is not an effective way to protect against inflation or bear markets, and is usually only an inadequate hedge against these events. Furthermore, its price volatility makes it a highly risky investment with minimal returns during stock market rallies. Furthermore, political and economic events often make identifying its true worth difficult.
It’s a poor hedge against inflation
People mistakenly believe that gold can protect purchasing power; however, this belief is founded more in fear than fact. Gold as an inanimate asset does not generate passive income or compound interest – making it an ineffective hedge against inflation; in fact buying it may even turn out to be financially detrimental in the long run.
Gold has long been touted as an effective protection against inflation; however, this statement ignores its limited effectiveness over the long term and its lack of efficacy in other currencies than US dollars.
Gold is an unstable asset that can quickly decrease in value, which means investors must consider their time horizon and ensure they can withstand price drops. Exchange-traded funds are generally better investments for gold than purchasing physical coins which incur high commission fees; investing in gold should only be undertaken if your time horizon is very long-term.
It’s a poor investment strategy
Gold can be considered an unwise investment strategy due to its lack of dividends and interest. As it fluctuates regularly in price, investors must carefully consider their financial goals, risk tolerance and investment horizon before purchasing physical gold. While it can act as an excellent diversifier in a portfolio, only 5-10% should comprise its total assets at any one time.
No matter its inferior returns and poor hedge against inflation, gold remains popular with investors. This could be because people value its sociohistorical precedent as something of value; also hard to argue against its status as a precious metal that has been revered for millennia. Unfortunately though, the truth is that gold doesn’t make for an effective investment portfolio and investors would be better served with diversifying across stocks and bonds to reduce risk.
