“Don’t buy GOLD.” Check out why you’re better off looking at other investment options than having this asset! [Wednesdays: The Independent Investor]
Miles Everson’s Business Builder Daily speaks to the heart of what great marketers, business leaders, and other professionals need to succeed in advertising, communications, managing their investments, career strategy, and more.
A Note from Miles Everson:
Since the ancient days, gold has been prized, coveted, and viewed as an asset with real inherent value.
Until today, this metal is still highly esteemed and used as a hedge against inflation. It is also considered as a tool of diversification in some countries and a currency in its own right.
But, is gold a good investment nowadays?
Continue reading today’s article to learn more.
CEO, MBO Partners
Chairman of the Advisory Board, The I Institute
The Independent Investor
The COVID-19 pandemic hit the whole world hard. Many people lost their jobs and struggled to make ends meet.
… but even through the worst of it all, one thing that’s worth taking note of is the demand for gold remained strong during these times.
One of the countries that are BIG users of this precious metal is India.
In fact, the demand for gold never declined in the country.
Photo from CNBC
India has been a consistent buyer of gold. On average, a typical Indian family holds 11% of their wealth in this type of investment. In the country’s culture, this is a popular way to show how affluent they are.
Now, as the world reopens following the deadly impacts of the pandemic, India is also renewing its love for gold. With festivals like Diwali and other public gatherings once again taking place, Indians see more opportunities to wear elaborate jewelry and give gold as a traditional gift.
In the world of investing, is gold also a valuable asset for these Indian families?
Let’s see if this shiny, yellow metal has actually done anything for them in this context…
The Value of Gold Often Rises in Times of Inflationary Concern
Historically, a lot of people turn to gold as a hedge in times of uncertainty. When they are nervous about the state of the world due to geopolitical events, they buy gold.
[Hedge: An investment made with the intention of reducing the risk of or offsetting potential losses and gains from adverse price movements in an asset.]
At present, many are predicting that gold prices will rocket higher due to growing concerns about inflation. However, even after the value of the prized metal increased due to worries about the Russia-Ukraine war, it is barely higher than it was at the end of 2020.
The current value is also far off from the high prices in August 2020!
Here’s the thing: While gold is expected to perform well in the medium term in 2022, that is not enough reason to buy the yellow metal in its physical form.
Below are a few reasons why as an investor, you should avoid buying physical gold as a form of investment:
- Storage and Cost Issues
Physical gold is an expensive commodity. Storing it requires a secure space to avoid the risk of theft.
Additionally, buying gold in the form of jewelry has overhead charges. According to Mrin Agarwal, Financial Director and Educator at FinSafe India:
“Buying gold works out to be more expensive as there are many overhead charges involved, such as the making or wastage charges, which typically work out to 25% to 30% of the cost.”
So, the next time you’re planning to acquire gold, consider these factors first to assess whether or not this piece of metal is truly worth buying as an investment.
The purity of gold can also be a concern, especially in units that are a few years or decades old.
In other words, you never really know how old or pure a piece of gold is. If you’re not an expert who knows about gold’s possible impurities, you tend to believe in what the jeweler or seller says. This poses a problem in the future because you aren’t sure of how much value your gold really holds.
- No Interest Earned
Unlike other financial instruments that provide returns or dividends, physical gold offers no returns while it is with you.
Besides, would you make an investment without the purpose of earning more money in the long run?
You probably wouldn’t.
Any investment you make is done with the goal of earning returns… and given the issues and difficulties associated with investing in physical gold, you may be better off looking at other options such as equities or mutual funds.
According to Professor Joel Litman, CEO of Valens Research and Chief Investment Strategist of Altimetry Financial Research, buying gold is only buying a shiny piece of metal.
While gold may have been a good investment in the 1930s in Germany or in the 1990s in Zimbabwe, it’s better to put your money in the stock market today because it won’t become a disappointing asset as long as you follow a clear strategy.
One more thing: Gold is a tricky investment. As Tom Cassidy, Chief Investment Officer at Peoples Security Bank & Trust Company, said:
“Gold’s return is solely based on the price going up. Thus, when you sell gold, you create a capital gain that in most cases will be taxed at the more favorable capital gains tax rate. However, if one invests in gold in a tax-deferred account, the gains one receives will be taxed based on their income tax bracket, which is typically higher than their capital gains rate. So, if an investor does want to own gold, it should be done using taxable assets.”
We hope you gained a lot of valuable information from today’s topic!
Remember: When you’re looking for investments with higher returns, ignore those who are saying, “Buy gold.”
You can make a greater deal of money if you’re willing to act immediately and invest properly in various companies that are doing well in the stock market.
Have a great day!
(This article is from The Business Builder Daily, a newsletter by The I Institute in collaboration with MBO Partners.)
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“Wednesdays: The Independent Investor”
To best understand a firm, it makes sense to know its underlying earning power.
In two of the greatest books ever written on investing, the “Intelligent Investor” by Benjamin Graham and “Security Analysis” by David Dodd and Benjamin Graham (yes, Graham authored both of these books), the term “earning power” is mentioned hundreds of times.
Despite that, it’s surprising how earning power is mentioned seldomly in literature on business strategy. If the goal of a business is wealth creation, then the performance metrics must include the earning power concept.
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