It seems that whatever I read, watch or listen to these days gets interrupted by a commercial with a current or former celebrity telling me I need to buy gold because of inflation, because Russia invaded Ukraine or 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 current or 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. And the truth is timeless. You can research everything I say in this blog and verify it.
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 the dollar.
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 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.
So that really makes gold either a hedge against inflation 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. It just sits there.
If I sound dismissive about "investing" in gold it's because I am.
What's the long term rate of return of gold?
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. Frankly, you would be better of buying art.
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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