Money Myths: Should You Invest in Gold?
There have been rumors of an impending recession for some time now — enough to spook some investors into moving their money to safer pastures. For some, the safest option has been investing in gold. But is gold really the best way to secure your financial future? Here’s what you need to know before making a decision.
Why Some Investors Turn to Gold
Gold was long considered a form of currency before paper (and plastic) took over. Although the U.S. abandoned the gold standard in 1971, gold is still viewed by many as a form of wealth. Some investors consider gold a safe alternative to riskier investments like stocks, believing it to be resistant to inflation and economic downturns.
Dennis Nolte, certified financial planner and vice president of Seacoast Investment Services, says, “There’s always someone who believes you should put everything into gold.” During the 2008 financial crisis, the price of gold actually increased, reinforcing its reputation as a traditional diversifier in bad times.
The Risks of Investing in Gold
While gold can be seen as a safe haven, it’s not without its risks. The value of gold is not tied to other types of investments, meaning its price can be volatile and influenced by global events.
Alexander Vaccarella, certified financial planner and senior vice president at Wealth Enhancement Group, explains, “Gold moves completely independently of inflation and can lose purchasing power.” This unpredictability makes gold a risky investment for those looking for consistent returns.
Furthermore, unlike stocks, gold does not generate income. Stocks represent ownership in companies that produce goods, provide services, and generate revenue. Gold, on the other hand, is a “dead asset” that doesn’t produce earnings or dividends. Its value is purely speculative, based on the belief that others will continue to pay for it.
“In reality, gold has been an awful investment over the past few decades,” says Vaccarella. “A long-term price chart for both gold and silver shows huge up and down swings with little in the way of long-term appreciation.”
Should You Invest in Gold?
You can invest in gold in a number of ways: buying physical gold, purchasing gold certificates, investing in gold exchange-traded funds (ETFs), or buying stocks in gold mining companies. However, financial experts generally advise against putting all your money into gold.
While owning some gold could provide a small hedge against economic crises, the best way to protect yourself during turbulent times is by diversifying your investments across different asset classes. This approach reduces risk and increases the potential for growth.
Tip: “It’s purely speculation,” says Vaccarella. “Gold gets value simply based on the idea that others will pay for it.”
Before making any investment decisions, consider your financial goals, risk tolerance, and the overall composition of your portfolio. Gold can be part of a well-diversified portfolio, but it should not be your only investment.
Want to learn more about investment strategies? Check out our guide to smart investing.
Description: A person holding a gold bar, weighing the pros and cons of investing in gold as part of their financial strategy.
