Should Young People Invest in Gold?
Friday, September 22nd 2023
The issue about where to invest is one of the main concerns for new those who want to enter the world of financial markets. With our ever-changing, technologically advanced age it’s easy to become enticed by the excitement of emerging investing opportunities such as cryptocurrencies (1) and tech-related stocks. Yet, one avenue that is often overlooked which deserves your attention is gold. It’s a solid foundation of financial stability which has been cherished over the past countless years. But the question is, should younger investors look into gold as part of their portfolios?
Understanding Gold as an Investment
Gold has historically been seen as an indispensable financial lifeline during turbulent economic times. Unlike stocks or bonds, however, its value doesn’t depend on company profits or government fiscal policy – instead its prices depend on global supply-demand fluctuations, geopolitical events and even investor behavior to some degree.
Gold as an asset holds intrinsic value that cannot be reduced through bankruptcy or insolvency proceedings, providing investors with a relatively secure investment vehicle resistant to inflation and economic downturns. Though unlike many investments, holding physical gold does not generate income unless rented out or used commercially which may make its holding less than ideal as an investment vehicle.
The Pros of Investing in Gold for Young Investors
- Hedge against inflation: Gold can provide an effective hedge against inflation. As currency values decrease during periods of increasing inflation, its purchasing power remains intact – thus protecting one’s wealth and purchasing power.
- Portfolio diversification: Gold can add significant diversification to a portfolio. Since gold’s low correlation with traditional assets means it may continue to perform even when other investments do not, adding gold may increase overall portfolio diversity and performance.
- Gold is globally accepted: Gold has global acceptance as it’s unaffiliated to any one nation’s economy; therefore, it can be sold almost anywhere around the globe and provide liquidity and accessibility globally.
The Cons of Investing in Gold for Young Investors
- No passive income: Unlike stocks which provide dividends and bonds which pay interest, gold does not yield passive income for young investors, thus forgoing compounding returns over time.
- Storage and insurance costs: Owning physical gold comes with associated storage and insurance costs that could significantly diminish any gains that might otherwise have accrued from an investment decision. These additional charges could undermine any returns generated through investing.
- Price volatility: While gold may provide stability during times of economic downturns, its prices remain vulnerable to sudden shifts. When political and economic stability returns, however, gold prices tend to decrease substantially.
Gold vs Other Investment Options
Young investors may find the rapid expansion of emerging investment avenues such as cryptocurrency trading or green technologies more appealing due to their potential high returns; however, these options also entail considerable risks due to their volatile nature.
Real estate and stock market investments, on the other hand, have proven reliable over time in terms of long-term growth potential and passive income streams like rent or dividend payments – something gold investments do not provide.
Evaluating Personal Financial Goals
Individuals weighing whether to invest in gold should do so according to their financial goals, risk tolerance and investment timeframe. Young investors with greater tolerance might prefer riskier assets that offer potentially higher returns; those seeking safety could find gold an appropriate addition.
Young investors looking for long-term financial investments like home ownership or retirement may see gold’s non-income generating nature as a detriment; however, as it could serve to protect wealth during volatile economic environments it could prove invaluable as an insurance policy against uncertainty.
Practicalities of Investing in Gold
Modern investors don’t necessarily need to store physical gold bars or coins when considering investing in gold; there are multiple other avenues open to young investors looking for exposure.
- Physical gold: Purchasing physical gold involves purchasing it as bars, coins, or jewelry with full ownership but needs to consider storage costs for security and insurance costs as part of this investment strategy.
- Gold ETFs and mutual funds: Gold ETFs (2) and mutual funds provide investors with an easy and practical way to invest in physical gold without its storage challenges. Traded on exchanges like stocks, these instruments also boast high liquidity levels for investing.
- Gold mining stocks: Investing in companies that mine gold can offer another method for diversification into gold prices; however, performance of such stocks depends not only on price fluctuations but also operational efficiencies and profits of each mining operation.
- Gold futures and options: Gold futures and options are complex financial contracts which allow investors to speculate on the price of gold in the future, carrying high levels of risk that are unsuitable for inexperienced investors.
The Role of Gold in a Young Investor’s Portfolio
Young investors could see gold’s primary role as that of an economic and diversification shield – potentially helping offset losses during economic downturns while adding stability and steadiness to an investment portfolio. Unfortunately, gold doesn’t generate passive income on its own so younger investors with longer investment horizons may prefer other income-generating assets for the core of their investment strategy.
Gold should serve more as an insurance policy as the main source for wealth creating. Strategically placed investments could reduce the risk of loss without forfeiting potential long-term growth opportunities provided through other investments.
Decisions surrounding investing in gold require careful consideration. Young investors shouldn’t simply dismiss gold because of its “old school” image but nor romanticize it as an investment strategy that guarantees returns.
Success with investing requires creating a well-diversified portfolio that fits within an investor’s financial objectives, risk tolerance and investment horizon. Gold may or may not play a part in this decision and should be carefully assessed, with guidance from an advisor where possible. Knowledge is power when making any financial investment decision!
Are you ready to invest in a gold IRA?
This is the perfect time to get some gold to hedge your retirement account. Gold makes sense in an IRA! Take a look at our list below of the top gold IRA vendors – many of which are currently offering no charges for the first year of new clients.
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