This article discusses the benefits of investing in gold, including its ability to protect purchasing power and improve risk-adjusted returns in a portfolio.
Gold isn’t just a commodity. It is the most universally recognized and liquid medium of exchange on earth. Central banks around the world own over a billion ounces of gold to protect their currencies against recessions, inflation, and geopolitical turmoil.
While there are many reasons you might personally own precious metals, here are the top 7 benefits of investing in gold:
Gold ensures financial independence
Gold is the only major asset that holds its value independently of government decree and the banking system.
When you own gold, the value of gold does not rely on the decisions of any particular authority. By reducing dependence on governments and banks, gold is the best way to guarantee individual autonomy over your financial life.
Gold improves risk-adjusted returns
While gold doesn’t pay dividends (like stocks) or interest (like bonds), it does appreciate in value over time. Adding gold to an investment portfolio helps provide stability and improve investment performance.
Gold acts as a buffer against market downturns, helping to protect the value of an investment portfolio during turbulent times.
Since the end of the gold standard in 1971, gold has outperformed the S&P 500.
Gold keeps your financial life private
In an increasingly digital and regulated world, financial privacy has all but disappeared.
Gold is much more difficult to track and regulate than cryptocurrencies. That’s because cryptocurrency transactions are recorded on the blockchain, a public, electronic ledger that keeps a permanent record of all transactions across a network of computers.
Even though transactions are pseudo-anonymous, transactions on the blockchain such as Bitcoin or Ethereum are publicly visible. According to coin ledger, the IRS can trace anonymous transactions to known individuals.
Unlike digital currencies, gold transactions are not tracked and recorded on a public ledger.
Gold minimizes losses in a portfolio
When financial markets and currencies perform poorly, gold performs well. Portfolios with a gold allocation consistently perform better during times of volatility because individual investors, businesses, and governments tend to buy gold during times of crisis.
Because physical gold has no counterparty risk, investors use it as a safe-haven asset and a store of value when other assets become riskier (especially during times of economic uncertainty and geopolitical turmoil).
Minimizing drawdowns is essential for maximizing long-term returns.
Gold has also served as a better buffer for stocks than the traditional bond allocation. The charts below show the performance of three different portfolios over three different time periods:
- 100% stocks (dividends reinvested)
- 67% stocks, 33% bonds (annual rebalancing)
- 67% stocks, 33% gold (annual rebalancing)
Gold preserves wealth
Fiat currencies are in a constant state of devaluation because they have no limit on supply. Printing money is always the politically expedient solution, even at the expense of long-term stability. The more money is created and pumped into the system, the more prices necessarily rise.
Gold, on the other hand, has maintained its value over thousands of years. Gold safeguards your savings against the erosion of purchasing power caused by interest rate manipulation, government spending, and mounting debt.
Gold moves independently of other assets like stocks and bonds, making it a valuable diversification tool for investors looking to spread risk in their portfolios.
Gold is a hedge against inflation
When the value of fiat currencies declines, gold retains its purchasing power. Indeed, the massive increase in the price of gold over the last 50 years mostly reflects the erosion of the value of the dollar.
Owning gold ensures that you have the means to pay for necessities like groceries and gas years or decades into the future, regardless of currency devaluation. In effect, you can look at gold as an alternate way of saving your hard-earned dollars.
Gold offers liquidity
Gold is highly liquid, meaning it can be easily bought or sold. Crucially, gold maintains its liquidity even when other assets become very difficult to trade. The most common ways to own gold are in physical bullion, coins, jewelry, or through gold-backed exchange-traded funds (ETFs).
One of the easiest ways to start investing in gold is to open an account through the Vaulted app.
Is gold a good investment?
Gold is an excellent alternative savings vehicle if you are trying to build wealth and shield it from economic uncertainty.
Determining your ideal gold allocation depends on various factors. First, consider your personal financial goals.
For example, you may have short-term goals of paying off credit card debt or building an emergency cash fund. Long-term goals may include buying a house, saving for retirement, or putting away funds for college.
Your risk tolerance will also factor into your decision. If you are approaching retirement, you may lean towards conservative strategies that safeguard your wealth rather than taking on higher risks.
How can I invest in gold?
The best way for you to personally invest in gold will depend on your personal situation. You can learn more about the best ways to invest in our guide, How to Invest in Gold: 7 Methods You Should Know About.
Vaulted is the easiest way to own real gold
With just a few taps, you can own physical gold in any quantity. It takes 30 seconds to set up your free Vaulted account.
Once you securely transfer funds, you will be able to buy real gold instantly. You will get direct ownership of specific, serial-numbered bars. You can even take delivery of your gold if you wish!
