Is Gold a Good Investment?
Following up on last week’s post about gold being a safe investment, you may ask yourself, “Should I invest in gold?” My thought is probably not.
I’m sure that many people who read this will be screaming, “Aaah, you’re completely nuts! Everybody should own gold.” I’m open to being dissuaded from my current views; however, while gold has done well over the last 10 years, historically, the stock market has performed better.
I ran across this statement on Wikipedia that sums up my thoughts quite eloquently: “Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e. growth due to anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil,” (http://en.wikipedia.org/wiki/Gold_as_an_investment).
We have seen a fair amount of turmoil over the last few years, with the “War on Terror” and related efforts, which have likely contributed to gold’s increase value.
Ultimately, if you believe that the political structure is going to crumble or the economy will collapse, gold is a better option than the stock market—of course, you may also want to include some food storage, a gun, a port-a-potty, and cigarettes in that event (those cigarettes could become your most valuable asset). Nothing in life is risk-free. The political system could change to a communal form of government and you might have all of your property taken away from you. My bet is that those disasters won’t happen, so I’m keeping my money in the market.
I know this topic has some passionate people on both sides of the issue. I’d love to hear your two bits on the matter.
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I'm Michael Crowther, and I'm passionate about sharing the peace of mind that comes from budgeting, saving (including debt elimination), and investing.
April 2nd, 2009 at 1:01 pm
In regards to your article of “Is Gold a good investment” I agree with you for the most part but what about using it as a second savings. For example after putting money in your savings account buy some gold or silver to help hedge inflation. Isn’t the US currency dropping in value because of inflation. Were gold and silver have stayed up with inflation. What do you know about this?
April 4th, 2009 at 1:04 pm
This is a good question. I looked into this a bit and was going to put together my own data in Excel, when I found someone else who already had. Chris Butler at The Investing Pig did a great job covering this topic in his article “Is Gold an Adequate Hedge Against Inflation?” It’s well worth the read.
You may also find this article interesting.
“The Risk-Adverse Portfolio: A Historical Perspective.”