With the state of the economy today, you should be thinking about ways to increase your income streams. Investing is one of the ways to achieve this purpose. You can choose to put your money on stocks, bonds, and mutual funds. Nowadays, these assets are digital, which means that you’ll receive a certificate of ownership for them.
Others, though, opt to invest in a silver bar or gold coin since they’re more tangible. Both of these choices have immense value even in the olden times, more so with the latter.
Pros of Investing in Gold
Gold has always been considered a valuable commodity. Here are the advantages of investing in this precious metal:
1. Long-Term Store of Value
Gold’s performance has withstood the test of time. This is why it’s viewed as a long-term store of value. If you’re thinking about preparing for your retirement or having something to leave your children and grandchildren, sterling or white gold bars and coins may provide the solution for you. Learn more about telling white gold apart from sterling silver.
2. Inflation Hedge
In relation to being a long-term store of value, gold’s value is inversely influenced by inflation. This means that its price goes up when the currency’s purchasing power goes down. It may be due to the tangibility of the precious metal, which, in turn, makes it a commodity.
These are the types of gold investments that you can put money in:
- Physical – Physical gold is also known as having a direct investment. It pertains to bullions and rare or numismatic coins. These are the ones that you can hold in your hands.
- Paper – There are also exchange-traded futures, funds, options, and contracts for differences (CFDs) that allow you to trade gold electronically. You’ll receive a certification that you own a set number of gold assets, which you can buy or sell.
- Stocks – Gold stocks are indirect investments because you’ll actually be investing in mining company shares. The best part about this type of investment is that you get to receive dividends, which means that you can enjoy the profits after just a few months of investing in these stocks.
3. High Liquidity
Gold has become a popular investment option. Due to this, there are a lot of platforms where you can easily buy or sell gold. This makes it easy for you to convert your investment into cash or, in other words, its liquidity.
Highly-liquid investments are useful because it gives you a choice to use the money you invested. This is particularly valuable during emergencies when you need a considerable amount and you don’t have enough funds set aside for the situation.
4. Portfolio Diversification
Another reason why individuals and even businesses should invest in gold is to diversify your portfolio. It’s no secret that you should invest in various types of assets. This is an excellent hedge against risks associated with market price fluctuations.
For instance, with the current coronavirus pandemic, the stocks of hotels and airline companies would’ve plummeted. Conversely, software startups, especially those that are useful for medical and work-from-home purposes, might’ve experienced massive growth in the recent year.
When you invest in gold, you’re diversifying your portfolio. Along with this type of investment, you may also put money in stocks, bonds, and mutual funds across different industries.
Cons of Investing in Gold
As with any other asset, you also have to be aware of the possible risks that are involved when investing in gold, such as:
1. Hefty Capital
Since gold has already established itself as a high-value commodity, you’ll need substantial capital to invest in the precious metal. Of course, it should be noted that you’ll still have to put in a considerable amount on other assets if you want significant returns. With this in mind, there isn’t a major difference between gold and stocks, bonds, as well as mutual funds.
2. Specialized Storage and Insurance
Another challenge that gold investors may have is finding specialized storage. Gold bars and coins aren’t just something that you’d want to lock away under your desk or pillow at home. You need to make sure that it’s guarded well.
Most people would place their high-value tangible assets in bank lockers. However, it would result in a negative yield since you must pay for this storage option’s maintenance each year. Often, the cost would encompass the price of insurance.
You can certainly store your gold at home, though, if you don’t want to pay an annual maintenance fee. Nonetheless, you still need to consider the cost of purchasing a heavy-duty vault along with insurance in case a burglar sneaks into your home and runs off with your assets.
3. Speculative Nature of Value
If you’ve ever wondered about how the value of gold is calculated, its price is actually influenced by supply and demand. This highly speculative nature can pose a disadvantage for investors. After all, the price of gold would definitely plummet if everyone in the world agreed to devalue it.
Moreover, gold doesn’t give investors any sort of yield, unlike other assets that pay dividends. You can only get your return on investment (ROI) when you sell it. Additionally, storing and purchasing insurance for physical gold can actually result in a negative yield for the owner.
Digital assets, like stocks and even cryptocurrency, may have threatened the precious metal’s value. Fortunately, gold remains to be a strong contender as an investment option. This is probably because many people have stored their money in it, which slightly reduces the risk that comes with its speculative nature.
Gold is a viable investment option for those looking for something that can provide them with a long-term store of value. The precious metal has also performed well through the years against inflation. Its popularity has paved the way for its high liquidity, and you can also invest in it to diversify your portfolio.
Nonetheless, you must be aware of the possible risks involved in this type of investment. First, you need hefty capital to be able to purchase pure gold. Another challenge is finding the best storage and insurance for your assets. Lastly, its speculative nature of value can be precarious for conservative investors.