Gold has long been recognized in Western culture as both a form of currency and an icon of wealth, often seen as both. Many believe gold will retain its value during times of economic uncertainty.
Experts disagree. Investing in precious metal does come with its share of costs, such as premiums, fees and storage fees.
1. It Doesn’t Pay an Income
Gold may seem like an attractive investment idea, but should it really be seen as a safe haven? While gold tends to gain in value during periods of uncertainty, there may be better strategies available to you for protecting your portfolio.
As previously discussed, physical gold does not produce income on its own; purchasers of bullion bars or coins depend on its rising price to make any profit at all, as opposed to gold miner owners who can benefit both from price fluctuations as well as its increased production capacities.
Futures contracts on gold don’t generate interest or dividend payments. Though some experts advise owning some gold as part of a diversified portfolio, experts advise limiting it to no more than 10% of total assets for maximum returns. Equities and bonds may offer more reliable returns than this speculative asset; tax free purchases from dealers registered with the IRS could offer even better results.
2. It’s Risky
Gold can be an attractive investment option as a safe haven in times of financial turmoil, providing savers and investors with protection and helping to reduce risk. Diversifying an existing investment portfolio with gold is also popular.
Gold doesn’t provide a regular income and owning it can be costly; unlike dividend-paying stocks or government bonds which deliver regular returns; physical gold ownership (whether ETFs or bullion) requires storage costs and insurance in order to remain an asset.
Before investing in gold, it’s essential to carefully consider your time horizon and ensure you can withstand periods of price drop. Furthermore, Dennehy suggests other investment vehicles such as shares in companies producing new resources may yield higher returns with potential redemption for cash at any time.
3. It’s Not for Everyone
Gold can provide diversification and some protection from inflation, but investors should carefully assess its risks before considering its investment potential. It should not replace stocks, bonds or other forms of investments; so unless you are an experienced investor yourself, seek professional advice in making the most of your funds.
gold differs from other asset classes in that it does not generate income through dividends or interest; rather, its value increases when someone pays more for it than you. Therefore, owning it can become expensive over time with storage fees and insurance costs rapidly accruing.
Physical gold investors, whether coins or bullion bars, should view it as an investment for the long haul and ensure they can wait out price drops without risking significant financial loss. Otherwise, their money may slip through their fingers; otherwise if patience is lacking they should opt out; investing could become quite a headache!
4. It’s Expensive
Although gold prices have reduced slightly in price, investing in it remains expensive due to its non-productive nature and thus, lack of growth; only another investor willing to purchase more for it would see any returns from your money invested in gold.
Storage and insuring physical gold is costly, while it’s an unstable investment whose price can rapidly fall and take years to rebound from.
Gold should only make up a minor part of your overall investment portfolio for several reasons, even when performing well; there may often be more suitable alternatives. This is particularly relevant if your time horizon is limited as it can be hard to tell when gold is cheaper compared to other assets. On the other hand, for long-term investors gold can serve as a useful diversifier during times of uncertainty as well as inflation hedge.