Personal Finance

Gold sounds fancy to invest in but Dave Ramsey's team has this to say about the shiny metal

Joey Frenette

Published: January 23, 2025 9:36 am

Precious metals are a good-looking alternative investment (or is it more of a speculation?) for investors looking beyond the equity markets for a source of returns. Undoubtedly, gold could outshine the S&P 500 again as investors look to beef up their personal reserves alongside various central banks worldwide. Indeed, gold may be a fantastic lowly correlated asset to help further diversify your portfolio and help you ride out the storms that will eventually arrive. That said, it’s impossible to value gold as it’s not a cash-producing asset. All you can do is buy with the hope that someone else will pay a higher price at some point down the road.

In this piece, I’ll react to Dave Ramsey’s take on the precious metal and weigh the pros and cons of injecting your portfolio with gold in this new year. Can it add some shine, or will it lose its luster after a fantastic 2024? That’s the big question. But just because gold beat the S&P 500 last year doesn’t mean it’ll pull off the feat again. In fact, gold has historically underperformed stocks over the long run.

Gold Ramsey’s take on gold—he’s not a big fan.

Unsurprisingly, Dave Ramsey has not been bitten by the gold bug. In fact, when asked about the metal, he pointed to history. Indeed, it does have a “lousy long-term track record” compared to investments like equity mutual funds or index funds. Combined with a lack of cash flow generation and emotion-driven booms and busts, it’s no mystery as to why Ramsey gives a thumbs-down to gold.

While some of the biggest names in the investing world may also not be huge fans of gold (think Warren Buffett and even the late, great John C. Bogle), I do think it can make sense for some investors who aren’t in the asset for a shot at quick gains.

Sure, gold has been a stellar investment of late, gaining around 35% in the past year alone. But such a return expectation for the year ahead, I believe, is not incredibly unrealistic but potentially dangerous, especially as momentum investors and performance chasers get into the gold trade at near all-time highs. Of course, I could be wrong, as some macro event could spark a wave of fear and a rotation into safe-haven assets like gold.

For the most part, I agree with Ramsey that gold is not the best investment one can make in the long term. It has its shortcomings versus other investments, but it can make sense to own a small bit of the metal for the sake of diversification.

When investing in gold can make sense

In smaller doses, gold can be an attractive portfolio diversifier and hedge against a rainy day (or inflation), provided you don’t trade it like Bitcoin. Still, while often viewed as a safe-haven asset, gold can also have its fair share of rainy, even stormy days.

Back in the early-to-mid 2010s, gold was clawed down in what was a rather unforgiving bear market. Given the massive number of question marks surrounding gold prices, I’d argue that investors keen on exposure should limit it to a single-digit percentage point of their overall portfolios.

Of course, a financial advisor can help you find the ideal gold allocation for you, whether it’s 2% or closer to 5%. In any case, understand that gold, while lowly correlated to the stock market, isn’t a risk-free asset. It can surge higher when the stock market falters. But the reverse scenario is also true as we witnessed back in 2012. Whether sprinkling a bit of gold dust on your portfolio at these levels is wise remains a mystery. In many cases, gold can move more unpredictably than stocks.