Why investing in gold is a bad idea?

Physical gold returns tend to be poor. If you buy gold jewelry, for example, you may not earn as much when you sell it as you did when you bought it. Storing physical gold securely can be difficult, as it is vulnerable to theft. Physical gold will never be a passive and constant source of income.

But this gold standard didn't last forever. During the 1900s, there were several key events that eventually led to gold's transition out of the monetary system. In 1913, the Federal Reserve was created and began issuing promissory notes (the current version of our paper money) that could be exchanged into gold on demand. The Gold Reserve Act of 1934 granted the U.S.

Government title to all gold coins in circulation and end the minting of any new gold coins. In short, this act began to establish the idea that gold or gold coins were no longer needed to serve as money. It dropped out of the gold standard in 1971, when its currency stopped being backed by gold. To determine the investment merits of gold, let's compare its performance to that of S%26P 500 in the last 5 years (as of April 202.Gold has performed significantly less than S%26P 500 during this period, with the S%26P index generating almost 100% total return compared to gold, which returned only a 42.5% in the same period.

The point here is that gold is not always a good investment. The best time to invest in almost any asset is when there is negative sentiment and the asset is cheap, which provides substantial upside potential when it returns to favor, as stated above. If you own an ounce of gold today, in a year, in ten years and in 100 years, you will still have an ounce of gold. On the contrary, if you have shares in a company, companies produce things.

I talk more about this in Podcast 23, about how we should all invest as business owners. Inflation-adjusted yields for long-term bonds were 2.9% during that period, and equities returned 7.4%. We have even seen in recent years how gold prices can rise and fall rapidly. Their inflation-adjusted yields are slightly above Treasury bill yields, but their standard deviation is more than 13%, which is huge.

That is my basic vision of gold as an investment. I think most people are better off investing in a commodity fund. For example, I invest 5% of my portfolio in DBC, a commodity fund that holds only a small amount of gold, among other commodities. Investing in gold with the idea that it never loses value is the wrong approach.

Like any investment or financial asset, gold is subject to supply and demand pressures that cause the price to fluctuate. Gold jewelry can be easily purchased at any jeweler and return rates depend only on current gold rates. There is simply no way that the industrial and decorative uses of gold can match the supply of available gold. If you are buying gold for your retirement account, you must use a broker to buy and a custodian to keep your gold.

Now, when you sell gold, the story is totally different, you don't take into account the manufacturing charges and you get the money just for pure gold based on the gold rates on that particular day. When investing for retirement, you need an investment that generates current income or that is reasonably expected to appreciate in value so that you can sell it in the future and use it for consumer purposes. Just like when you have a dollar bill in your hand, you are sure that you can have your investment in the form of gold bars or silver coins in your hand (or stuck in your safe deposit box). If you look at historical gold prices, you will discover that the price of gold skyrocketed dramatically in the 2000s.

For new participants in the investment world, the fund's gold fund would be a simpler and safer bet in which the investor can make a profit along with learning about investments. The creation of a gold coin stamped with a stamp seemed to be the answer, since gold jewelry was already widely accepted and recognized in various corners of the earth. These investors have as many reasons to invest in metal as there are methods to make those investments. You can still own physical gold directly, but now many investors own gold through exchange-traded funds.

Before we move to the conclusion, let's quickly talk about the taxes imposed on gold investments under the Income Tax Act. If you want to invest only in physical gold, gold bars and coins will always be more profitable than jewelry. Although gold bars and coins are not much different from jewelry, they differ in the fact that they are made of pure gold and do not include any manufacturing charges. .


Angelia Panyko
Angelia Panyko

Passionate twitter maven. Passionate bacon enthusiast. Beer geek. Wannabe zombie specialist. Typical coffee junkie. Devoted beer trailblazer.