Gold as an Investment: Pros & Cons
Updated: Jun 23, 2021
Gold has been a go-to investment to preserve wealth throughout history. Dating pack to 600 B.C., gold's ability to preserve capital came in handy during times of political unrest and crumbling empires. With our country's current environment, it makes sense why people want to put more gold in their portfolio. But is that the best choice?
Positives
- Has an average return between 4%-5% (From 1928 to 2019)
- Has a track record of successfully being used to preserve wealth over centuries
Negatives
- Doesn’t pay a yield
- Difficult to calculate the intrinsic value
- Difficult to liquidate in comparison to equities
- Transaction costs are typically higher than equities
An investors' choice of having gold in their portfolio or not having gold in their portfolio is a personal one. It's important to recognize that the United States has a dollar whose value is declining - resulting in inflation. It has been shown over time that hard assets are great wealth preservers during periods of high inflation. Gold is one of these hard assets and is best used for diversifying a portfolio.
Bowman, Richard, et al. “Is Gold a Good Investment? - Pros and Cons of Investing in Gold.” LEHNER INVESTMENTS, 19 May 2020, catanacapital.com/blog/gold-investment-pros-cons-investing-inflation-hedge/.
Lioudis, Nick. “Does It Still Pay to Invest in Gold?” Investopedia, Investopedia, 7 May 2021, www.investopedia.com/articles/basics/08/invest-in-gold.asp.