Commodities & Metals

Is Gold Ever Really a Good Investment? Why Is It So Popular?

Kristin Hitchcock

Published: October 5, 2024 1:30 pm

24/7 Wall St. Key Takeaways:

• Gold provides stability and a means of diversification, though it doesn’t appreciate as much as other assets. 
• A balanced approach that includes hold as a part of a diversified portfolio can help investors ride out downturns and market instability. 
• Also, read “The Next NVIDIA.”

Despite fluctuations in price, gold has remained a popular investment choice for many. This allure often raises a question: Is investing in gold truly a wise financial decision?

Based on our research and experience, gold can serve a purpose in an investment portfolio. However, it’s important not to let the emotional factor of owning gold get in the way of having a diversified portfolio. 

Yes, investing in gold can be a solid investment, but that doesn’t mean you should hoard a bunch of gold in your basement. 

We’ll take a look at the potential benefits of owning gold and compare it to other investment options below:

Why Do So Many People Invest in Gold?

Gold has remained a popular investment choice for hundreds of years. Long before stocks were in existence, the wealthy were purchasing gold and hiding it in chests. 

Today, many people invest in gold for emotional reasons. It’s seen as a symbol of wealth and has some relatively unique properties, such as being relatively durable and scarce. It’s remained a seemingly worthwhile investment for far longer than other goods. 

It’s also tangible. Many people like to invest in gold because it is a tangible asset, while stocks and bonds are not. 

Financial Reasons to Invest in Gold

Beyond the emotional and worldview reasons people invest in gold, adding gold to a portfolio can also make great financial sense. Often, it’s seen as a hedge against inflation. While fiat currency often loses value, gold holds its worth, even over hundreds of years. It’s seen as the crowning jewel of economic stability. 

Including gold in a diversified portfolio can reduce overall risk. Its price movement is independent of stocks and bonds, so it can balance out the market’s overall volatility. 

Physical Gold vs. Gold Investments

Many investors prefer to buy and hold gold physically, such as coins or bullion. This is especially true for those investing in gold for emotional reasons. This allows them to physically hold the asset in their hands and retain complete control of it. 

Alternatively, ETFs also offer exposure to gold without the investor needing to physically store it. This option also makes it easier to sell the gold and often has a lower transaction cost compared to buying physical gold. 

Are Alternative Investments More Profitable?

Historically, high-performing stocks have outperformed gold in the long run. There is a huge potential for capital appreciation and dividends with stocks, which makes them an attractive investment. However, they don’t offer the stability that gold does.

Like gold, real estate can also act as a hedge against inflation, even providing some passive income. Over time, real estate also tends to appreciate more than gold. 

Gold’s Role in a Diversified Portfolio

Gold’s unique characteristics can help manage risk in a well-diversified portfolio. Although gold doesn’t offer as much appreciation as other assets, it is extremely stable. Those interested in gold can allocate around 5-10% of their portfolio to gold, protecting against inflation and market downturns.