Yes, it generated profits shortly after the Lehman Brothers crisis, when investors dumped stocks to buy gold. Investors turn to gold in times of uncertainty around the world. However, when the economy is good they throw it away and these are exactly the conditions that prevail at the moment. One can invest in gold in different ways based on need. However, rates are correlated and changes in the international bullion market will affect gold.
Why do people invest in gold?
The reasons why people invest in gold are also varied, as gold is held in some cultures as a form of wealth and savings, while in other countries and for other individuals, it is used to hedge financial market risks. As well as it is more about desire. To protect against rising inflation.
Especially in Western countries, gold is invested in by fear of inflation, and by investors who want to own an asset that has no connection to the stock market, to diversify their portfolios. I can balance.
Whenever interest rates fall, or more importantly, inflation rises, investors tend to invest in gold, while a fall in the stock market also leads to more buying.
Disadvantages of gold investment
The main reasons why investors choose not to invest in gold are that, in general, gold does not provide any yield, it involves trading and storage costs, and in the short term it is insufficient. is unstable. While these are all reasonable concerns, they shouldn’t stop people from holding some gold as part of their portfolio.
While gold does not tend to yield (theoretically it can be loaned out, although it is difficult to do so in practice), its long-term investment more than makes up for the shortfall in income, with gold prices rising. There is an increase of about 9%. annually over the past 45-plus years. Given the preferential tax treatment of capital versus income tax gains for long-term investors, there is an advantage to having your gains exclusively on the capital side.
The cost of trading and storing gold is also not very high and is basically in line with some of the fees charged on other investments such as managed funds.
Finally, while yes, gold is volatile in the short term (like stocks), investing in gold over the long term pays off, as shown in our earlier post on the 9% long-term return. According to the comment. This type of return is nearly identical to the stock market and outperforms other traditional defensive assets such as bonds and cash.
1. Liquidity
Gold investing is a game of patience. Gold is a viable investment option for the long term but be aware that it is a viable option to store your funds for the short term. Also, when you buy physical gold from a dealer or a gold investment company, they lose it.
This means you have to pay a bit more than its original market value. The same is true if you intend to sell it. Liquidity is one of the biggest disadvantages of investing when you aim to hold it for a short period of time. You may not be able to earn profit due to the agent or dealer’s commission.
2. Gold Investment Returns may not be higher
The benefits of investing in gold can be significant for long-term use. Also, this commodity may not provide monthly or annual returns like real estate, stock exchanges, or certificates of deposits. You can only earn profit by reselling the gold you have. It is clear that if you want to increase your wealth, gold investment is not the right deal to crack.
3. Gold Investment Needs Security and Insurance
Gold coins or bars are not like other assets that you might keep in your desk drawer or record shelf. This precious metal has to be kept in a special and highly secured storage. One of the challenging downsides of investing in gold is maintaining a high level of security to protect it.
Even if you opt for services from a gold investment company or banks, they may charge you for providing security. These storage and maintenance fees may surprise you if totaled for long-term storage.
4. It is difficult to transact when you have invested in gold
There are three other important issues you need to plan for. Finding a bona fide buyer, verifying that you are the bona fide seller, and proving that you actually own the metal. One of the main challenges you face when reselling gold is proving that yours is genuine.