“You should invest in gold” is a common financial fallacy due to the assumptions it makes about the stability and consistent growth of gold as an asset. While gold has long been considered a safe harbor during times of financial uncertainty, relying on it as a sole or major part of your investment portfolio can lead to substantial risks. Here are few primary reasons why the “gold is the best investment” idea often doesn’t hold water:
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Lack of Passive Income: Unlike stocks or real estate that can generate dividends or rental income, gold is a non-income generating asset. It doesn’t pay you any dividends or interest.
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Price Volatility: Gold prices can fluctuate wildly based on factors like economic insecurity, inflation, and currency values.
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Storage and Security Costs: Physical gold needs to be securely stored and insured, which can add to the overall cost of the investment.
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No Intrinsic Value: A company’s stock has value based on its potential to generate profit. Gold’s value, on the other hand, is largely based on demand and supply trends, not its ability to generate revenue or profit.
It’s easy to see why we may fall for this fallacy. Gold has been coveted and valued by human civilization for millennia. It’s tangible, shiny, and its scarcity gives it intrinsic value. Therefore, it feels safe and reliable, unlike abstract financial assets. Additionally, during periods of economic instability, gold can seem like a solid investment as its price tends to hold steady or even increase while other assets are falling.
An appropriate financial practice involves diversification of investments; spreading your investments across various asset classes such as stocks, bonds, real estate, and yes, a small amount in gold or commodities, based on your risk tolerance and financial goals.
Further Reading Specific to Gold Investment Fallacy:
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Book: “Guide to Investing in Gold & Silver: Protect Your Financial Future” by Michael Maloney. Book Link.
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“Pros and Cons of Having Gold in Your Portfolio” - Money.
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“A Beginner’s Guide to Precious Metals” - Investopedia.
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“Gold as an investment” - Wikipedia.
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Book: “The New Case for Gold” by James Rickards. Book Link. While this book argues for gold, it also presents insights about the misunderstandings of gold investment.