Buying gold has been a traditional way to invest money for years. It’s an easy way to see your investment whether you keep it at home, in a bank vault, or in a storage facility.
But today, investing in the stock market is more common. Why is that? What are the advantages and downsides of investing in gold?
Keep reading for a full breakdown of the pros and cons of buying gold.
Pros:
If you’re never bought gold before, you may be surprised to know the number of benefits that come along with investing in it. Here are four of them.
Simplicity
If you’ve ever looked into investing in the stock market, you know how confusing it can be. There is so much stock to choose from, and people make careers off of trying to help you invest in the right choice. Contrarily, investing in gold is straightforward.
You can buy gold from dealers across the country, in the form of coins, bullion bars, or jewelry. You can then store it in a deposit box in the bank. As you accumulate more gold, you can use more boxes, adding layers of protection.
Although you do need to pay attention to how the price of gold is doing, you won’t need to check the stock market 3x a day. Gold presents a simple and easy to understand option when compared with stock.
Gold Is a Safe Investment
If the idea of investing in the stock market seems too uncertain, know that gold is a reliable investment. The price of gold is always rising, and while fluctuations may occur, they generally go back up.
There is also less of a relationship between how the economy is doing and the price of gold. Oftentimes, as the economy plummets, people choose to invest in gold. This further increases its value.
If you’re the slow but steady kind of investor, investing in gold could be a wise decision.
Lower Rates of Inflation
One economic reality is that the value of the money in our bank accounts slowly decreases. For example, the average price of a new house in 1990 was $150,000. Then 20 years later in 2010, it was $220,000.
On the other hand, if you look at the value of gold over a period of years, it generally remains the same. In fact, the rise in the price of gold is greater than the increasing inflation rates.
Gold maintains its purchasing power over time while the dollar loses it.
Protection Against Market Turbulence
If your investments are in bonds, stocks, and mutual funds, a market crash could devastate your portfolio. Most people cannot predict when these events will occur, as outside influences are the causes.
Yet physical investments provide you with security against these sorts of fluctuations. By investing your money in gold, you are providing yourself with a safety net. This can help protect you against a future market crash or global recession.
The world is experiencing another severe economic slump on account of COVID-19. If you’re ready to be protected against the uncertainties of the global stock market, it might be a good idea to buy gold today.
Cons:
Although there are more benefits to buying gold than negatives, you should still be aware of a few potential downsides. Let’s take a look at three of them.
Liquidity
Gold can be a great investment for the long-term. Yet in the short-term, it can be more difficult to see results.
When you buy gold, you buy it from a dealer. This means that you are paying more than what the market price is at the moment. Selling gold and getting a return on your investment requires the same thing. Dealers often pay less than the market price as they view the purchase as a commission.
If you’re in a hurry to sell gold, you may have to accept the fact that you’ll make less in return than the market rate. For this reason, don’t put all of your investments into gold. Around 10-20% can be a good place to start.
Slow Gains During Periods of Market Stability
One of the pitfalls of the stock market is unpredictability. You can suddenly lose a lot of money if the market crashes. Yet as the potential for reward increases with risk, you can also make a lot of profit.
Gold is a stable investment but doesn’t offer the option of immediate gain that the stock market does. When investors feel the current economic climate is stable, they will buy gold. This can drive down the value of it.
This doesn’t mean you’ll lose money over a 10 or 20 year period. But it does mean that you won’t get the huge profit you can sometimes expect with other investments.
Subject to Politics
Whenever you invest in something, the political situation of the world can impact it. This is also the case with gold.
In some regions of the world, gold mining is a lucrative process. If there is political turbulence in that region, it can then affect the price of gold.
There can also be fears that a government or national bank will sell its gold supply, which can lead some people to believe the price of gold will plummet.
But it’s important to remember that price fluctuations are present regardless of which investment form you choose. Keep in mind that changes in the value of gold are temporary. As history has demonstrated, the prices always even out and continue to grow higher.
Be Aware of the Pros and Cons When Buying Gold
If you’re looking at buying gold, understanding these pros and cons can help you decide if it’s a sound investment to make. Remember that buying gold may not yield you results in the short-term, but it’s a safe investment that will steadily increase with time.
Do you think it’s a good idea to buy gold? Let us know!
Check out some of our other articles to learn more about finance and investment.