With the markets in turmoil, many investors are currently bailing out and pouring their money into that old favourite, gold. But is it still a wise investment. Here are the advantages and disadvantages:
The Advantages of Gold:
(1) Liquidity – Gold is accepted all over the world and can be converted into cash in almost every country.
(2) Value – Gold will keep its value over time. Gold is a commodity and there is a fixed quantity available, so it is not subject to the same fluctuations of the market as currency.
(3) An Inflation Hedge – Gold will always rise in times of inflation. Any deterioration in the dollar will see the price of gold rise. Consequently it is more stable than cash in times of uncertainty
(4) Diversification – Adding gold to your portfolio can be seen as just one more different kind of investment.
The Disadvantages of Gold:
(1) No Passive Income – Stocks and shares may give you interest and dividends. Gold will just sit there.
(2) Gold Often Creates Bubbles – If everyone piles into gold in turbulent times, a bubble can be created – once those investors panic, the price goes up and makes it overinflated.
(3) Gold Requires Storage – If you are going to actually buy real gold then you are going to need to be able to store it and insure it. This can be very costly.
(4) Gold is Subject to Higher Capital Gains – The Capital Gains rate for gold is 28% which is a great deal higher than the normal 15%.
Alex is a freelance journalist and financial blogger. He loves to write about baseball and jazz but spends most of his days writing about mortgages and tax reduction.