It seems that whatever I read, watch or listen to these days gets interrupted by a former celebrity telling me I need to buy gold because of (insert whatever manufactured crisis you want here). If I'm seeing this constantly then some of you are as well. So...let's talk about gold as an investment.
I'm not a former celebrity, radio or television show host which means I don't get paid by gold companies to tell you that gold is a good investment. My perspective is that I can't out advertise those companies but I can tell you the truth.
Is Gold A Good Investment Right Now?
Gold, as it turns out, isn't really an investment at all. It doesn't actually produce anything as it literally just sits there. It's only real function is that it can be used as a hedge against depreciation of our currency.
That simply means that consumers typically bid up the price of gold when they get concerned about the dollar losing value. That makes gold a sort of fleeing or flight currency. People buy gold when they get scared about current economic conditions.
Then when people stop worrying about the dollar losing value again, the price of gold goes back down to normal. This cycle repeats itself about every 4-5 years.
Gold is either a hedge or a currency speculation depending on how you look at it. Personally, I view it as a speculation because gold doesn't really have any intrinsic value since, as mentioned before, it doesn't produce anything.
If I sound dismissive about "investing" in gold it's because I am.
The long term rate of return after you factor in inflation is about 1%. That's not a hedge against inflation or a good investment.
The long term rate of return for the 500 best companies in the United States (S&P 500) after you factor in inflation is 7%. That my friends, is a hedge against inflation and a good investment.
If you are a long-term goal-focused investor gold has no place in your portfolio, but the 500 best companies in the United States do. Gold doesn't really go up, it's just sometimes the dollar goes down.
And as a general rule of thumb, when some retired actor is telling you how to spend your money, remember they are getting paid and, well...they are an actor.
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80/20 Financial Services is an Independent Registered Investment Advisory Firm. We help Electric Cooperative Employees create their retirement income and investment plans.
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