Is gold a good investment right now?
There are conflicting opinions out there about whether or not gold is a good investment for your portfolio. From your return on investment to storage challenges, learn everything you need to know to make an informed decision about diversifying. Find out if gold is a good investment for you today.
You might be asking yourself, “How do I diversify my portfolio to protect my assets?” It’s a fair question that every investor should ask themselves.
As you begin to explore your options to expand your investments outside of just stocks or savings accounts, gold will likely make it on your list of potential options.
But is it the best way to leverage your portfolio and maximize returns? We’re going to discuss the pros and cons of investing in gold right now and explore some alternatives that may be better suited for your portfolio.
Why is gold a good investment?
Gold serves as a stable and steady investment that can help you diversify your portfolio and protect against inflation. It also offers:
- Long-term ROI. Gold has almost always maintained or gained value, making it a fairly safe investment.
Though in the long-term gold is outperformed by stocks, it can be a more lucrative investment in the short-term. For example, from 2005 to 2020, the price of gold increased by 330% due to a decreasing supply and an increase in global demand.
- Better returns than bonds. Gold historically has also outperformed bonds over both 15- and 30-year time horizons, with bonds having an annual rate of return of around only 5%.
- Increasing rarity. Over time, the production of gold has slowed, making it a rarer commodity. Gold mining peaked in 2018 and decreased by 1% in 2019—the first annual decline since 2008.
This lowering supply has also helped drive up the price of gold over time.
- Portfolio diversification. Historically, gold performs opposite to other standard financial investments like stocks. Often if stocks are delivering impressive returns, gold is likely in the red. This inverse relationship makes gold a great way to diversify your portfolio against major market fluctuations and hedge against a weak stock market.
- Investment in physical assets. Gold is also a “real” asset instead of a financial asset. When you buy gold, you’re purchasing a physical item, versus stock or ETFs, which is a financial asset. Because gold is a commodity, it also helps with your portfolio diversification because its value isn’t tied directly to the U.S. dollar.
Why is gold not a good investment?
Though gold may hedge against inflation, it’s generally not a reliable way to get rich quick—and may never deliver the ROI you’re looking for.
- Other assets outperform gold. Though gold is a good investment now, stocks and other financial assets typically outperform gold in the long run. For example, from 1972 to 2013, stocks returned 14.68% but gold futures only 7.85%.
- There’s no guarantee of gold’s value. Gold’s value is determined exclusively by supply and demand, which doesn’t ensure that prices will continue to rise. Since historical performance isn’t an indicator of future success, it’s impossible to know whether or not the value of gold will continue to rise.
- Gold is challenging to store. Though there are advantages of gold being a physical asset, it also poses a large challenge: storage. Because it is a physical item, gold can be hard to store and difficult to keep secure. If you choose to outsource the storage and security, it can be expensive, which ends up eating into the value of your returns.
Today, certain platforms like crypto project, Digix, are working on creating ways to more easily store and trade gold online and through the blockchain.
- Other investments may perform better. Gold isn’t the only investment option to help hedge against inflation. Other investments like real estate or bonds also protect your portfolio against inflation—while often delivering higher overall returns than gold.
So should you invest in gold?
Gold could be great for you if:
- You have a lot of money invested in traditional markets like stock.
- You foresee hard times coming to traditional markets.
- You know a secure place to store your investment.
Gold may be something you should hold off on if:
- You are a beginner investor.
- You don’t have much money invested.
- You don’t know a reliable place to store your gold.
Alternate ideas to investing in gold
Gold and financial assets like stocks aren’t the only investment options out there. Instead of sticking to traditional investments, you could explore more modern opportunities to expand your portfolio like peer to peer investing.
Peer to peer investing connects you with people who want to borrow money online. You benefit from returns in the form of interest payments from the borrowers, while the borrowers get easier access to the funds they need. Investing with a P2P platform can be a great way to diversify your portfolio out of traditional markets
Online platforms like MyConstant make P2P easy for both borrowers and investors.
Using MyConstant, you can invest your money to fund loans for borrowers—and reap the benefits of earned interest. You can also use any cryptocurrency assets to fund loans or to invest, earning interest on those assets as well.
MyConstant offers 3 different investment options for those looking to diversify:
- Instant Access, for example, allows you to earn 4% APY through decentralized lending and liquidity pools.
- Crypto-backed investing allows you to lend to cryptocurrency holders around the world for up to 7% APR.
- And Crypto Lend lets you lend your BTC, BNB, or ETH cryptos out to DeFi projects for up to 9% APY.
Instead of focusing exclusively on gold, be sure to explore all of your options—like peer to peer investing—before making the final decision on how to expand your portfolio.
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