Gold, silver, platinum, and other precious metals are beautiful on you, but they don’t make good investments, according to Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, Free Market Wealth and Stewardship Coaches. Read on for their take on the pitfalls of investing in gold.
Have you seen or heard the many advertisements promoting precious metals? They all talk about the past fifteen years. Do you want to invest in something that only has a good fifteen-year track record? Look at the long-term returns on gold: Since 1926, the World Gold Council reports gold returns have been only about 5.3%; however, the S&P 500 Index is 9.75% and the U.S. Small Stock is 12.20%!
Do you remember the technology crash in 2001? Everyone thought the tech company values would just keep going up. They did ... until they crashed and many investors lost fifty percent of their account values! This could also happen to gold. To be a smart and successful investor, you must be globally diversified. Precious metals are only one sector of one asset class. Investing in gold is not prudent diversification!
Remember these tips to help you spot a bubble:
If everybody is talking about it.
It has three to five years of unbelievable returns.
It’s the “IN” investment to have.
Financial advisors are adding it as a new diversifier.
There's an infomercial about it.
For any of these, think bubble. Investing in bubbles or trends increases the volatility or risk of a portfolio severely. Bubbles create a false sense of safety, but they are anything but safe.
If you want to gamble, go with gold. The risk, or volatility, of gold is higher than the S&P’s risk and more similar to the risk level of small stocks, but with less than half the return. But, if you are not willing to invest in that level of volatility, get out of the limited diversification of gold and move into broader globally diversified stocks with less risk.
If you are a globally diversified investor you already own gold, as it is included in the asset class risk category within the twenty-plus different asset classes. It makes no sense to duplicate the risk levels that the globally diversified, always liquid strategy already covers.
Wear and enjoy your precious metals. The only way to beat inflation is to invest in broadly diversified equities and hold them for the long term. It really is just that simple.
Written by: Maria J. Wordhouse Kuitula and Phyllis J. Veltman Wordhouse, free market wealth and stewardship coaches, co-authored the book Stress-Free Investing, available at Amazon.com. Maria is the president of Wordhouse Wealth Coaching and may be reached at 616-460-6518 or [email protected]. For QUESTION LISTS and INVESTOR EDUCATION VIDEOS, go to www.WordhouseWealthCoaching.com. © Wordhouse Kuitula 2013. Photos: stockxchng