Gold has been recent research by Retirement Living, searches for “how to invest in gold and silver” rose by a whopping 656% over the past 12 months.over the past few years. As inflation persists, interest rates rise and major banks fail, more investors have turned to gold as a for their money. In fact, according to
Gold has historically provided consistent returns and has been a good store of value in. When assets like stocks are suffering, gold prices tend to hold steady if not increase. It’s not surprising, then, that Retirement Living’s survey found that more than half (63%) of Americans are wary of making new investments in traditional assets like stocks.
But are alternative investments like gold better than traditional assets? Should you consider adding more gold to your portfolio or replacing stocks with it altogether?
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Should you invest in gold instead of stocks?
Gold offers many benefits as an investment, but so do stocks. Here’s what you need to know.
Gold vs. stocks: How they compare
To determine where gold and stocks fit in your portfolio, you must first understand.
Gold is a relatively low-risk investment. It’s been proven to hold its value over the, weathering market ups and downs that can significantly harm other assets. It’s a solid , enabling you to preserve your wealth amidst economic uncertainty.
However, it doesn’t have the potential for high returns like more volatile assets, such as stocks, do. It also doesn’t generate income. You only profit from it when you sell it (or, in the case of a, when you take withdrawals in retirement).
Stocks are highly subject to the whims of the market. Their value can rise and fall precipitously in response to everything from investor sentiment to bad PR for a particular company. As a result, you could net a significant profit if you buy and sell at the right time, but you could also lose much of your investment overnight.
That said, if you hold onto stocks for a long period, returns tend to even out to an average of 10%. Some stocks also provide dividends, or shares of company profits, providing you with a passive income stream.
The importance of diversification
When it comes to maximizing your returns while minimizing your losses, focusing on one asset over the other is the wrong approach. The right approach isyour portfolio with a mix of assets.
“I believe that diversification is the key to investing success, so one should have stocks, bonds, commodities (like gold), etc. to manage risk factors and their expected returns and to diversify away concentrated risks,” says Dana Menard, CFP, founder and lead financial planner at Twin Cities Wealth Strategies.
Gold has performed well in recent years, reachingin April of 2023. But that doesn’t mean you should shift the bulk of your investment dollars from stocks to gold.
“Stocks, bonds and gold as major asset classes are diversifiers, and they should behave differently under different types of environments,” says Chris Berkel, investment adviser and president of AXIS Financial. “When COVID-19 surged initially, gold did very well — a diversifier. Central bank easing during that time was a benefit to treasuries, which also did well. However, when the recovery in stocks started, bonds and gold did not do well.”
In addition, since gold’s returns are steady but moderate, it’s important to leave room in your portfolio for assets like stocks that can generate higher returns.
“If we look at time periods historically, there are decades where you would want to own gold over bonds and bonds over stocks,” says Berkel. “However, over 100 years, we know there is a net benefit to being an equity, risk-on investor. So, selling stocks to own gold would be ill-advised.”
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How to invest in gold and stocks
As a rule of thumb,keeping about 5% to 10% of your portfolio in gold to get the most from its stabilizing benefits while allowing room for higher-return assets to grow your money faster.
For stocks, experts recommend investing a percentage equal to 100 minus your age. So, if you’re 30, you should aim to keep 70% of your investment dollars in stocks.
That said, it’s best to speak with a financial advisor to identify your ideal target allocation.
“Constructing a portfolio that is right for an individual should take into consideration their time frame, risk tolerance, expectations and overall financial situation,” Menard says.
The bottom line
Gold and stocks can both be smart investment choices, but they, and these differences mean they’re best used in combination with each other.
Stocks can result in higher returns, but also come with higher levels of volatility and risk. A strategic amount of gold can protect your portfolio from this risk, but your returns won’t be as high. By investing in both assets in the right percentages, you can enjoy the best of both of them.
Simply put, “Do not choose gold over stocks; choose both,” says Berkel.