Is gold a good long-term investment?
Gold has been valued for centuries as a safe-haven investment. It's considered a reliable store of value and an excellent hedge against inflation during economic turbulence. However, gold prices can fluctuate (sometimes significantly) in the short term, leading some investors to question its value over longer timeframes.
In this article, we'll explore gold's viability as a long-term investment and why it's well-suited for investors looking for lasting value.
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Is gold a good long-term investment?
Gold is a solid investment for many reasons. Here's how it helps investors in the long run.
Reliable returns
Gold is a reliable long-term investment due to its ability to weather economic storms. It has proven to be a buffer against everything from market volatility to global pandemics.
"From 1970 through 1982, when inflation was both volatile and moving upward, gold returned an incredible 390%!" says Doug Carey, CFA, president and owner of WealthTrace. "Gold is also a good hedge against credit and currency crises. Starting in 2007, when the financial sector was in dire straits, gold climbed by 145% over the next four years. Gold was also stable during the early days of the Covid pandemic as it only fell by about 3% while the S&P 500 fell by over 34% from its peak."
Economic ups and downs are inevitable. When it comes to your portfolio's long-term performance, the ability to ride out these waves is crucial.
Store of value
Gold is a physical asset that holds its value reliably over time, preserving investors' purchasing power. It can't be devalued by overproduction the way fiat currency can — there's only so much gold to mine, and we can't create more of it.
Gold is used not only for investment purposes but also in industries such as technology and jewelry. It has a universal value that's recognized worldwide, making it easy to buy and sell in any country. For all of these reasons, central banks, such as the Federal Reserve, hold gold to alleviate risk and shore up stability in times of economic turmoil.
"Gold has been a store of value for nearly 5,000 years and has been used by mankind as a medium of exchange," Chris Battifarano, chief investment officer for FineMark National Bank & Trust, recently told CBS News. "There is no obvious reason for this to change."
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Protection against losses
Having a diversified portfolio helps you mitigate risk and protects you against sudden market drops. Gold is not as subject to market fluctuations as more volatile assets, such as stocks which can suffer dramatic losses seemingly at the drop of a hat. This makes gold a smart choice for investors who want to preserve their wealth.
"Gold is a diversifying asset that can help reduce the overall risk of a portfolio," Carey says. "It tends to have a low correlation with other assets like stocks and bonds, meaning that it can help offset losses in other areas."
In fact, when other assets are suffering, gold tends to do particularly well. For example, gold prices rose in six of the eight biggest stock market crashes of the last 40 years, according to GoldSilver.
The bottom line
Gold is a time-honored investment that continues to attract investors seeking to preserve their wealth for generations to come. Gold has proven its worth as a reliable store of value throughout history. It can diversify your portfolio and protect your wealth from inflation, market volatility and economic downturns.
However, gold does have its drawbacks, as does any other investment. Take the time to research your options and weigh them carefully against your long-term financial objectives and risk tolerance level. When in doubt, seek the advice of a financial professional.
