Five Reasons To Not Bet The Farm On Gold

by Hank Coleman

The lure of gold is everywhere these days. With the price of gold hovering around $1,300 per ounce, everyone and their brother is rethinking whether or not they should be investing in gold. Is it too late? How much gold should be in your portfolio? We are being bombarded by late night infomercials, celebrity endorsements, television pundits, scrap gold buyers, and a host of other pressure to jump on the bandwagon.

Most readers of the blog should know where I stand on buying gold. I actually wrote a long guest post on The Dough Roller blog about the dangers of buying gold especially on late night TV. I am not a gold fan, and I am not a fan of commodities or precious metals, including gold, comprising of too much of your investment portfolio. All precious metals should make up no more than 5% to 10% of your total portfolios. Gold may look like it is just continuing to go up and up, but it is a horrible long term investing.

Five Reasons Not to Own Too Much Gold…

  1. The price of gold declined in 14 out of 20 years between 1981 and 2000. Those are some of the prime investment years to be losing so much money.
  2. Gold’s price has already been over $1,000 per ounce three times in the last 30 years.
  3. In 1974, the U.S. government changed the law and allowed private citizens to invest in gold on the open market. In 1974, the price of an ounce was about $100. Based on today’s price of approximately $1,100, gold has lagged the overall market and returned only 6.8% per year. The historical stock market return has been approximately 8% per year even throughout the decades you could not legally own a bar of gold.
  4. Stocks beat inflation better than gold. Stocks have returned an average of 11.5% between December 1974 and December 1999. Inflation has averaged 4.2% during that time.
  5. People argue that gold is a safer investment because it is a real asset. That is a flawed assumption that real assets are safe. Real estate is a real asset as well and look where that asset value went over the past few years. Real assets are no safer than paper assets like stocks in today’s market.

Investing in gold just because it is popular right now is not the right thing to do for your financial wellbeing.  Investors often lose sight of gold’s poor long term historical results or lack thereof. Short time horizons with extreme volatility and market uncertainty do not help the long term investor.  Gold and precious metals should only comprise a small portion of your overall retirement and investment portfolio. Making it a main component will set your financial future up for disappointment.

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