Many investors turn to gold because they believe it will provide them with protection during economic turmoil, yet most fail to compare its long-term returns with those generated from stocks or mutual funds.
Physical gold can be costly to store and transport; additional expenses include handling costs as well as storage and insurance policies. Furthermore, its price often lags behind inflation.
1. It’s illiquid
Gold is costly and illiquid, meaning it cannot quickly be converted to cash. Storing physical gold carries risks such as theft and loss; storage fees can also add up quickly. In contrast, investing in broad-based stock funds typically yields better overall returns over long periods than owning physical gold.
Gold can be an inconsistent protector against inflation; to maximize protection from inflation and provide positive returns after accounting for inflation, invest in productive assets such as stocks or real estate that provide positive returns after taking inflation into account.
Gold may seem like an attractive safe haven during economic instability, but for most investors it’s not an optimal investment choice. Instead, wise investors focus on making their money work for them by building wealth-creating assets – something Warren Buffett is well known for doing. Non-productive assets tend to lose value over time while investing in wealth-building productive assets is likely to lead to wealth creation.
2. It doesn’t generate income or profit
Gold doesn’t generate much in terms of profits; unlike stocks or bonds, which pay dividends; instead its price fluctuates depending on what people are willing to pay for it.
Though many still view gold as an investment option, many still view it as a status symbol and source of security as well as potential hedge against inflation. Furthermore, many who worry about the fate of their dollar turn to it for security.
However, there are other more effective strategies available to you that could help your money grow and help reach your financial goals. Consider adding gold to a diversified portfolio in moderation; too much could cost more than it benefits due to storage fees, premiums, and commissions which reduce returns. Gold’s track record as an inflation hedge has not been strong; prices tend to spike when markets become stressed but then fall off again during downturns.
3. It’s a poor hedge against inflation
While some investors use gold to hedge against inflation, precious metals typically don’t do a great job at protecting against rising prices. When interest rates increase and central banks attempt to combat inflation through rate hikes, precious metals often fall behind inflationary expectations. Energy investments often outshone precious metals during periods of unexpected inflationary surprises.
An effective way to safeguard yourself against inflation is with a well-diversified portfolio, consisting of stocks, bonds, real estate and other assets. A financial advisor can assist with developing an investment plan tailored specifically to your goals, risk tolerance and other considerations.
Costco’s gold ingots may make for an eye-catching conversation piece and beautiful bracelet, but they don’t provide the powerful inflation protection of an exchange-traded fund or physical gold investment — particularly when purchased through companies charging premium markups, storage fees, or commission sales. Instead, invest your money wisely in assets that generate passive income over time to grow wealth over time and expand your finances.
4. It’s expensive
Gold is an unproductive asset, meaning it does not produce profit or contribute to economic growth. Instead, it acts merely as an alternative way of protecting wealth. Unfortunately, physical gold purchases can be costly and require secure storage facilities for safekeeping – plus commissions, premiums and handling costs can quickly sap profits of those active traders in gold markets.
Gold may seem like an appealing investment option to protect wealth in times of economic instability and inflation, but it should be remembered that investing in this precious metal alone cannot protect wealth as effectively. Warren Buffett provides us with an essential investing principle: avoid investing in assets which don’t bring in income but instead focus on building wealth through productive assets which earn money.
Are you curious to gain more knowledge about investing smartly? Request our complimentary information kit now, and let us help you build a portfolio designed to grow over time.
