Investing in gold can give you a hedge against inflation since the precious metal maintains value during corrections and crashes. Gold can rally even when stocks and real estate fall, but just like any other asset, it comes with risks.
While many investors own stocks simply because they’re easy to purchase, gold investments have a steeper learning curve. Oftentimes, that’s enough to dissuade potential gold investors and send them running for the hills.
However, it’s possible to navigate these concerns and feel more confident about buying gold. Read on to learn about some of the most common fears associated with investing in gold, so you can overcome them and add the precious metal to your portfolio if you find it’s a good fit for you.
Choosing the wrong gold products
Investors can choose from several gold products: bars, ingots, rounds, coins, jewelry, collectibles and more. There’s also rose gold, 24-karat gold, white gold and other products of varying purities. Having so many options can feel overwhelming, but there is a good path you can take.
Instead of committing to the first offer, reach out to multiple, reputable gold dealers offering the same product. This approach will help you gauge what’s a fair price for the gold product you want to buy. It also decreases the likelihood of overpaying for your gold.
Also, if you buy gold bars instead of gold coins, you can save money on an ounce-for-ounce basis. That’s because gold coins require additional craftsmanship to look the way that they do. Gold bars don’t require the same level of care as gold coins, which results in lower ounce-for-ounce prices.
Investors also don’t have to rush to buy troy ounces of gold, which currently cost more than $2,600 apiece. You can get started with a single gram of gold, which currently costs under $100.
Storage and insurance costs
Some potential gold investors also worry about storage and insurance costs. For those of you who are used to trading stocks, holding onto a physical asset presents new challenges. You can store gold in a safe deposit box, but you will need a separate insurance policy. That’s because banks do not insure the items stored in safe deposit boxes.
Most safe boxes cost $50–$150 per year, with the more expensive safe deposit boxes giving you more space. The storage costs become easier to absorb for investors who accumulate more gold. You will have lower storage costs per ounce if you have 10 ounces of gold than if you only have one ounce of gold.
The cost to insure gold typically ranges from 1–2% of its value. For instance, $100,000 worth of gold typically costs $1,000 to $2,000 per year to insure. These costs are similar to a mutual fund’s expense ratio, except you get full control and ownership of physical assets.
Gold can generate long-term returns that comfortably exceed what you pay in storage fees and insurance premiums. The precious metal has produced an annualized return above 10% over the past 20 years.
Missing out on other opportunities
Gold has produced solid long-term returns for investors, but it’s easy for investors to look at the opportunity cost of holding the metal. For instance, a top-performing stock like Nvidia has produced generational returns for long-term investors, soaring by more than 2,500% over the past five years.
Precious metals haven’t achieved those types of gains; the same can be said for most stocks, funds and real estate properties. But it highlights a common fear that the grass may be greener somewhere else. Capturing gains like Nvidia has provided over the past several years is like catching lightning in a bottle. Gold has appreciated steadily over time, proving its worth as a store of value.
It’s important to consider the objective of gold investing. While every investor wants to grow their money, each individual has a different risk tolerance. Gold caters to investors who have moderate risk tolerances. They want an asset that can withstand inflation and uncertainty, but they also know that some high-flying growth stocks will outperform it.
Nvidia has certainly crushed gold over the past five years but heralded pandemic-era growth stocks like Zoom, Etsy and Peloton have lost more than 80% of their value from all-time highs. While gold may lag the stock market during bull runs, the precious metal isn’t susceptible to those types of crashes.
It’s also good to note that Nvidia lost approximately 50% of its value during 2022’s bear market. Even the top-performing stocks can be blindsided by a shaky global economy, weakened consumer spending and elevated inflation. Gold is less vulnerable to those headwinds.
Additionally, you don’t have to — and shouldn’t — invest all of your money in gold. Most experts advise against that, and it’s common to hear advisors suggest having between 5%–10% of your portfolio allocated toward alternative assets, gold included.
Volatility
Sharp price movements can rattle new investors, and gold is known for being volatile in the short run. These price swings can tempt investors to sell out of their positions to avoid incurring additional losses.
While selling is warranted for some assets as available information changes, gold will always maintain intrinsic value. The precious metal has solid annualized returns over the past 20 years and has been a staple in civilizations for thousands of years. Publicly traded corporations come and go, but gold has remained intact, rewarding patient investors in the process.
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