Is Gold A Better Investment Than S&P 500?

Thursday, June 20th 2024

Investment options abound, with each offering its own distinct set of benefits and potential pitfalls. Two commonly compared investment choices are gold and the S&P 500 index indexes – two widely different investment philosophies where gold stands as tangible asset while S&P is comprised of public companies in America based on performance measurements; in this article, we aim to investigate their comparative advantages and disadvantages to answer this key question: is gold a better investment choice than the S&P 500?

Historical Performance of Gold and the S&P 500

Gold has long been seen as an investment asset and source of security throughout human history, serving as both a means of trade and store of wealth. Today, investors continue to turn towards gold during times of economic volatility as an insurance against potential loss.

The S&P 500 index serves as a broad equity market measure and represents 500 of the leading US companies, serving as an indicator for overall economic health, and predicting trends within economic and market environments.

Historical performance comparison between gold and the S&P 500 offers an intriguing picture. Since President Nixon ended the gold standard in 1971 through 2020, gold prices increased approximately 4,400% with an annual return rate of approximately 8.0%; by comparison, during that same timeframe the S&P 500 averaged an 11.7% average return per annum including reinvested dividends; significantly outperforming gold over this time period.

Gold tends to do best during times of economic instability. For instance, during 2008’s financial crisis when S&P 500 fell 38% but gold’s value climbed 5.5%.

Investment Risk and Volatility

Risk and volatility are part of every investment, including gold, and the S&P 500. Stocks tend to be more volatile due to corporate performance, economic factors, and investor sentiment; but this volatility also presents investors with high-risk tolerance and long-term goals an opportunity for potential gains.

Gold can be seen as an asset with less risk due to its long-term ability to retain value; however, its price can experience considerable fluctuation due to factors including global economic indicators, currency fluctuations, and geopolitical tensions that influence its price. Still, many regard gold as an effective hedge against inflation or a way to protect wealth when markets turn volatile.


Gold and the S&P 500 both score high on liquidity metrics. S&P 500 shares can easily be bought or sold during market hours via brokerage accounts, making transactions quicker than ever.

Gold offers excellent liquidity as a tangible asset, with physical gold easily sold through local dealers or online platforms, while ETFs for this asset class may be traded on exchanges just like stocks – however selling physical gold may incur additional expenses such as assay fees which do not exist with stocks.

Diversification and Portfolio Balance

Investors are advised to have a well-diversified portfolio to spread risk and potentially enhance returns. The S&P 500 provides this diversification within the equity market through 500 distinct companies across various sectors.

Gold provides an alternative method for portfolio diversification that is effective. As it’s non-correlated, its price does not follow stock or bond markets closely and thus including it in an investment portfolio can act as an insurance against market volatility.

The Importance of Timing

While historical evidence points towards S&P 500 being superior in long-term returns, investing at different times may significantly impact returns – for instance an investment made early 2000 before the dotcom bubble burst (1) would likely outshone it over 10 years.

Timing has always been key when investing, with investing in the S&P 500 immediately following the 2008 financial crisis (2) producing exceptional returns over subsequent years. Therefore, timing can make all the difference and ultimately swing either option in favor.


So, is gold the better investment choice than the S&P 500? Ultimately, this depends on your individual investment objectives, risk tolerance and market expectations. Investors seeking potentially higher returns while accepting periods of volatility might prefer investing in stocks over gold; on the other hand, investors looking for stable stores of value as protection from inflation or economic instability might prefer gold more than stocks.

However, it’s essential to keep in mind that these investments do not compete against each other – in fact a balanced portfolio should utilize each asset class for balanced growth and risk mitigation.

Understanding the unique properties of each investment option can assist investors in making informed choices that align with their financial goals and aspirations. When making investment decisions, it is recommended to seek guidance from an advisor or conduct exhaustive research before making their choice.

At the end of the day, both gold and the S&P 500 have proven their ability to preserve and grow wealth over time. Deciding between them doesn’t need to be either-or; rather it should involve considering which percentage each should make up of a balanced portfolio investment strategy.

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