Dave Ramsey stands apart from many personal finance experts by not advocating investing in precious metals, preferring instead diversification and long-term growth as the best path. Furthermore, he cautions against making decisions out of fear or greed alone.
Apart from its inherent risks, gold investments should also be avoided for several other reasons. These may include:
Historical performance
Gold can be an attractive investment option for many people, yet it may not yield as high a return as other asset classes due to its non-income-generating qualities and sole reliance on price appreciation for return. Furthermore, selling gold may prove to be more challenging and costly than selling other assets; according to Dave Ramsey’s philosophy on diversifying portfolios it’s wiser to research returns before making purchases of any investment such as gold.
Gold investors believe the precious metal offers strong long-term returns, protects against inflation, and offers shelter in turbulent times. But these claims primarily rest on two stellar performance periods: recent decade and 1970s.
The graph below depicts the real (inflation-adjusted) return on a $1 invested over fifty years in gold, US small cap stocks, the S&P 500 Index, MSCI World ex US stock index, CRSP 6-10 Index as well as storage and insurance costs. Please be aware that this chart includes both storage and insurance costs when considering its results.
Tax implications
As with any investment, extensive consideration and research are crucial before making decisions regarding gold investments. Not all investors may find gold to be the right option for them, so it is wise to consult a financial advisor prior to making any definitive moves – these experts can assist with creating budgets, diversifying portfolios and setting long-term financial goals.
Gold is a precious metal widely recognized as an alternative form of investment during periods of economic turmoil, providing both value and inflation protection. Before buying any gold, however, it’s essential to assess all applicable taxes before making your decision.
Gold investments are subject to the same capital gains tax rules as any other assets, while any physical precious metal gains are taxed at up to 28% of profits. Taxes such as this can eat into profits quickly; as a result, it’s wiser to invest through an IRA rather than directly buying gold bars or coins.
Emotional connection
One reason people invest in gold is that it has traditionally been seen as a safe haven during economic turmoil. Yet no modern economy has gone back to using it as its primary medium of exchange during an economic crash; instead people have generally relied more on paper currency or bartering systems during such times for survival.
Gold may seem like an attractive investment during volatile times, yet many individuals make poor investment decisions due to fear or greed. Before making emotional-based investments it is imperative to conduct extensive research and consult an expert.
Since 1992, Dave Ramsey has been helping millions of people gain control of their finances through personal finance advice and expertise. An eight-time national bestselling author and founder of Ramsey Solutions, his success is enhanced through national syndicated radio show episodes, podcasts and bestselling books. Ramsey Solutions stands dedicated to altering toxic money culture with biblically grounded but common-sense education and empowerment strategies.
Diversification
Diversification is a central principle in modern portfolio theory for managing risk. By including gold – which has low correlation to other asset classes like stocks and bonds – investors can improve risk-adjusted returns while simultaneously decreasing overall portfolio volatility.
Though investing in physical gold can have its drawbacks – such as storage costs and insurance premiums – there are other methods of investing in precious metals, with ETFs and mutual funds providing many advantages over buying and storing physical gold.
Dave Ramsey has made himself into a beloved financial expert, reaching millions through his radio show and podcasts. Unfortunately, however, his advice might fall short when it comes to precious metal investments; gold has not proven itself to be as lucrative compared to traditional investments such as real estate and 401(k)s; even over long-term periods like 50 years it only generated modest returns of about 2%!
