3 Benefits and Risks in Gold Investments

by Sudarsan

Looking to invest in gold this year? Investments carry varying degrees of rewards, as well as risks. Investing in gold is no different, with its inherent risks and rewards. Making an investment is a significant financial move with very little room for mistakes. The risks are far lower for everyday spending. For example, entering the wrong amount when you pay Spectrum by phone will hardly bankrupt you. But making a poor investment can (and does) lead to serious financial setbacks. There are several arguments in favor of and against investments in gold. Read on for details that can help you make an informed decision.

3 Reasons to Invest in Gold

Classical economics tells us that scarce commodities are the most expensive. Gold is a very precious metal therefore it has a higher value than most other natural resources. Gold has been synonymous with wealth for centuries. Currency notes in many countries are still backed by gold, whether partially or completely. This backing gives paper money its intrinsic value. Otherwise, it is just a piece of paper. But what about investing directly in gold? There are several compelling reasons that make it seem like a good idea. For example:

Stable Value Can Hedge Inflation

The most compelling reason to invest in gold is the stability in its value. Investing in gold is a great way to avoid losing money to inflation. But how does that work? Let’s say you have $100k in cash today. That’s a significant amount of money to own today. But this may not be true just a year from today.

Let’s say inflation rises by 20% over the next 12 months. A year from now, you still have $100k in cash. But the inflation costs will reduce its “value” to roughly $80k. Meaning your $100k today can purchase only $80k worth of goods in one year. Gold, on the other hand, remains relatively unaffected by inflation. In fact, it may actually increase in value over a year. Therefore, investing that $100k in gold can help protect it from inflation and preserve its value.

Real Wealth Makes Outcomes Safer

Gold is historically one of the safest investments. It does not have a great deal of fluctuation in price. Therefore, its price and increase in value are relatively stable and predictable. You may not turn into a billionaire overnight. But you can still make a relatively safer investment. And you can place greater reliance on the outcome of that investment. In other words, the risk of losing your money to a sudden plunge is very low.

A Ready Market for Gold Exists

An investment can become a liability if you cannot dispose of it efficiently. Rare collector’s items, for example, may be worth millions apiece. But they have a very specific market. To reach it, you may have to reach out to a middleman like a private art dealer or auction house. That involves paying a hefty listing fee and a heftier commission on the sale. Even then, there is no guarantee you can dispose of the items. Gold, on the other hand, has a ready market nearly anywhere in the world. That means you can dispose of it with relative ease. And, if you so choose, you can invest more money in gold with equal ease.

3 Reasons Not to Invest in Gold

Are you convinced gold is the right investment for you? Before you go rushing off to invest your hard-earned money in it, take a moment to consider. While gold may be a relatively safe investment, it may not always be the best one. Your own financial needs and expectations can play a significant role when investing. Therefore, examine these 3 key reasons against investing in gold before you make a decision:

Larger Risks of Loss Through Theft

The biggest concern when you invest in physical assets like gold is damage or loss of value. With gold, this can often take the form of theft. Physical gold looks like any other piece of gold. Especially if the thieves understand how to remove identification marks. Theft can often leave no way for you to recover the money you invested. More so if the gold undergoes physical processes that make it untraceable. You could get insurance for it, but insuring precious high-volume commodities also carries heavy premiums.

Significant Costs of Security

To mitigate the risks of theft, most people need to store their gold in secure spaces. Bank vaults, private storage companies, and even in-home safes make common choices. But banks, self-storage firms, and homes get robbed all the time. Therefore, you will most likely end up paying for premium and ultra-safe security measures. And these can cost a lot!

Generates No Real Passive Income

Finally, the biggest disadvantage to investing in gold is a lack of passive income. Your investment will appreciate in value. But unless you dispose of the gold, your investment and its accumulated value remain locked with it. At best, gold makes for a way to diversify your portfolio. But it will not help you make money unless you physically sell it.

Should You Consider Gold Investments?

You’re the best person to answer this question. Are you okay with investing money that will accumulate value without generating passive income? Or do you want more of a high-risk/high-reward situation? Do you want assets you can dispose of quickly? Or are you investing long-term? Your specific needs and circumstances will determine whether gold is worth the investment or not.

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