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After the market volatility that came with the pandemic—and now with the war in Ukraine—people are rethinking how they want to invest their money. Some folks are exploring alternative options like cryptocurrency, theorizing that digitization is the future of the dollar.
Other investors, however, are turning back time. They’re looking at physical stores of wealth, including time-tested favorites like gold.
My parents’ and grandparents’ generation thought nothing of owning gold. Everyone in my family invests in gold, actually, which is largely due to their Depression-fueled distrust of banks.
Although past generations were open to gold, it seems like my fellow Millennials scoff at the idea of investing in gold. In fact, Minority Mindset polled our readers and asked if they would invest in gold. A whopping 54% said, “No way!”
I’m not saying that we should put our life savings in gold, but as young investors, we often think that gold isn’t “for us.” With the right approach, though, gold can be a valuable addition to a well-balanced portfolio.
Pros And Cons Of Investing In Gold
- Hedge against inflation
- Tangible asset
- Independent of the public market
- Security and storage
- No passive income
- Low returns
- Low liquidity
Gold is a precious metal that humans have traded for thousands of years. It’s one of the oldest forms of currency, so it stands to reason that investors would still have some interest in it. There are several upsides to investing in gold, although it does have some downsides that make it a poor fit for some investors.
Let’s dig into why people invest in gold, the pros and cons of investing in gold, and how you can invest in gold safely.
Why Do People Invest In Gold?
Historically, humans bartered for goods and services. But we quickly realized that exchanging bits of gold and other precious metals was a lot more convenient than, say, trading a whole sheep every time we needed to buy bread.
Actually, modern finance is weird because we used gold as currency until the late 1800s. Countries started switching to paper money, but it was still tied to the value of gold.
That all changed for the United States when, in 1971, Nixon took the US dollar off of the gold standard. That made the dollar weaker and caused our markets to become much more volatile. While I could write an entire blog about that, the gist of it is that the US dollar and the price of gold now operate independently of each other.
With that said, why are people so enamored with gold? Why do some investors obsessively track the value of gold every day?
I don’t get the gold obsession, but many investors are interested in gold because:
- It has a limited supply: You can always print more dollars, but the amount of gold we can mine from the Earth’s crust is limited.
- Its value is stable: Well, relatively speaking. There’s a stable demand for gold in jewelry and electronics, but investors are usually behind the ups and downs in the price of gold. Even so, gold has a stable value compared to fiat currency.
- It’s a real asset: If the world goes belly-up and the zombies take over, at least you’ll own something physical. If you put all of your money into the market and the apocalypse happens, you have nothing. In this rare situation, gold acts as a hedge against uncertainty.
The Pros And Cons Of Investing In Gold
It’s easy to understand why so many investors have gold fever, especially in today’s tricky investing environment.
But we have to be honest, and the truth is that there are pros and cons to investing in gold. Be sure to weigh the benefits and downsides before you add gold to your portfolio.
- Simplicity: I like investing in gold because it’s simple. Heck, my entire hillbilly family managed to figure it out, so it’s very beginner-friendly. You buy the gold, store it, and hang onto it until you need it. You don’t need to worry about the intricacies of learning how to use a new investment platform, or checking the news for stock performance.
- Hedge against inflation: 81% of Minority Mindset readers say they’re worried about inflation and think it’s out of control. If you’re worried about the price hikes in gas, groceries, and products in general, you certainly aren’t alone. But that’s why so many people are considering gold right now. The price of gold goes up when the dollar is inflated. Since gold is a more tangible asset, it has more value to people when we think the dollar is doomed. In volatile markets, war, or recessions, gold is a good hedge against inflation. In the unlikely event of a global economic collapse, gold could very well become the new basis of our economy.
- It’s a tangible asset: Some people consider the paper dollar to be worthless because there’s nothing backing up its value. We can always print more paper money, but that doesn’t make it any more valuable. But gold has intrinsic value because it’s a real asset with a limited supply; that in and of itself protects gold against inflation.
- It’s independent of the public market: If you want to invest your money, the stock market is a beginner-friendly way to do it. But investing in the public market isn’t the only way to grow your money. Gold is in a class of its own, and operates independently of what’s going on in the public market. Gold has also seen a big rise in value since 2000 (thanks, Y2K), which shows that more people are putting their faith in gold as a store of value.
- Security and storage: Okay, have you ever held a bar of gold? This stuff is HEAVY. I’m sure gold was more convenient for our ancestors to transport than an entire goat herd, but good grief, this metal is dense and difficult to store. And if you buy $10,000 in gold without a plan for securing it, it’s as safe as “mattress money.” Whether it’s theft or a fire, you could lose all of your money in the blink of an eye. If you do invest in gold, you need a plan for securing it. That might mean a safety deposit box at the bank or a well-hidden fireproof safe in your own home.
- No passive income generation: Unlike investments, gold doesn’t generate passive income or dividends. Yes, the price could go up in value, but it’s not producing more coins of gold the longer you sit on it. This is why it isn’t a good idea to put all of your money in gold. It’s better as a small, speculative part of your portfolio because it can’t work for you the way a conventional investment can.
- Low returns: Has the price of gold gone up since 2000? Yes. But one big downside to gold is that the price does fluctuate, and it’s hard to predict. It’s not like gold is going to generate a tremendous return, either, compared to what you’d get with other investments. Think about it this way: the stock market returned 12.21% from 2009 to 2019. In the same time period, gold only returned 3.71%. There are no guarantees on the price you’ll get back on your gold investment if you decide to sell it later. So if you’re investing in gold purely to “get rich,” there are way better alternatives out there.
- It’s expensive: Right now, one ounce of gold will set you back over $1,700. If you're a newbie investor and you really want to invest in gold, it’s going to take a lot of cash to build a reasonably-sized gold cache. Owning even a few gold coins can cost you a fortune, and since gold doesn’t generate income on its own, it can be tough for investors to justify the price tag. Because gold is such a hot commodity, it gets bought up quickly by other investors, too. In a hot market, it’s tough for new investors to get their hands on gold, especially when old-timers don’t feel like selling.
- Tricky liquidity: You can’t just walk into your bank and withdraw money from your gold investments. Yes, there’s demand for gold, but it isn’t as easy to sell as investments like stocks. If you need to sell your gold, there isn’t really a public market where you can do that. You need to find a trusted local buyer, which means meeting people in person, either at pawn shops, gun shows, or other avenues. And if you need to get rid of a lot of gold at once, it’s going to take time to find enough buyers to liquidate your inventory.
How To Invest In Gold
The cool thing about investing in gold is that there are actually several ways to do it. But how you invest in gold depends on why you want to invest in it in the first place.
1. Physical Gold
When you own physical gold, you typically buy it in coins or bars. These obviously need to be genuine, certified gold with paperwork from the mint. While the condition of the coin will affect its value, you can also just sell raw gold by the ounce—I’ve done that in the form of old jewelry and used the money to pay rent.
If you want to buy physical gold, you can buy it at places like:
- Gun shows
- Online mints
- Local gold dealers
If those options sound too seedy for you, there’s another option: Vaulted is an app that lets you invest in physical gold without all of the headaches.
You create an account, link your payment information, and buy gold through Vaulted. It will separately store your gold with the Royal Canadian Mint, never mixing your gold with other investors’ gold.
Vaulted actually stores the gold for you, so if you live with roommates, it’s a great way to keep your investment more secure. You can always request to have your gold shipped to you via FedEx, too, if you’d rather store it yourself.
2. Paper Gold
The second way to invest in gold is with ETFs or CFDs. These funds make it possible to deal in gold electronically if you don’t want to store it physically.
This is a good option if you’re just interested in the price of gold. But if you’re worried about economic collapse, paper gold won’t do you much good, so stick to physical gold if the apocalypse is your main concern.
3. Gold Stocks
Did you know that you can invest in gold mining? With this investment option, you buy shares in a company that mines gold.
It’s an interesting workaround that allows you to speculate on the value of gold, because a miner’s performance is directly tied to the price of gold. Gold stocks also allow you to earn interest.
Again, this is a great option if you want to speculate on the price of gold, but it isn’t a good option for hedging your bets against an uncertain economy.
The Pros And Cons Of Investing In Gold: Is Gold Right For Me?
Gold is a durable, age-old asset that has been sought after for thousands of years. In today's volatile economy, gold is a sensible investment for those looking for a little security.
But investing in gold does have its drawbacks. Gold isn't the most liquid asset and the price fluctuates like any other commodity, so it's easy to lose money if you buy at the wrong time.
So, is gold right for you? It all depends.
I don’t think anybody should pump their entire life savings into gold. Gold is considered an alternative investment, so it shouldn’t make up more than 10% of your portfolio. Historically, gold doesn’t perform as well as investments, and it doesn’t generate interest, either.
Even so, I personally invest in gold to hedge my bets. It’s very much a “just in case” type of investment that’s good to have around after you’ve maxed out conventional investments, like stocks or ETFs, first.
If that sounds up your alley, great! You can quickly invest in gold (without the growing pains) by signing up for Vaulted.