Is Gold Really a Good Investment

Is Gold Really a Good Investment?

Smart investors have held gold as an inflation hedge over the years, and as a way to add counterbalance to their total investment portfolio. Speculators jump in and out of gold commodities contracts to make a quick buck. Some folks buy and hold this precious metal as a stand-alone investment hoping to profit in the long term as the price rises.

Is buying and holding the physical stuff a good investment for average folks? Let's take a brief look at the past and see how those who owned it over the years made out.

Those who bought an ounce (troy ounce) of gold at its low in 1976 got in at $104. With perfect timing they could have sold at its high of $850 four years later in 1980. That was a good investment, if you sold at $850.

It took many years to see $850 again, as the price fluctuated and this precious metal traded at a few hundred bucks an ounce for years. As a long-term investment, it was a poor performer. It did top $1000 not long ago, but sat at less than $950 in the early summer of 2009. Had you owned or bought an ounce in 1980 for $850, 29 years later you had about $950.

Gold pays no dividends. But stocks as an asset class do. Let's compare stocks to the world's most popular precious metal over the same time period of about 29 years, 1980-2009.

The Dow Jones Industrial Average (DJIA) is the most popular stock market indicator or index, and sold at a high of 1000 in 1980. In the early summer of 2009 it stood at 8500. Stock investors who simply held onto stocks could easily have made more than 8 times their money vs. very little gain for those investing in gold.

Plus, stock investors who held the Dow stocks averaged about 2% a year in dividends.

Historically, investing in gold has not resulted in growth. As a long term investment it has a lousy record. I suggest if you are considering buying it now, that you view this as a speculation, not as a long term hold.

Better yet, I suggest allocating maybe 5% of your investment portfolio to this precious metal in the form of gold stocks or mutual funds ... to add balance to your investment portfolio.

The price of gold could soar at any time as a result of international political tensions, severe economic stress or other catastrophe. It makes sense to allocate a small portion of your assets here, but I would never invest in gold heavily for long term growth ... unless I was truly a pessimist.

Over the long term, pessimists have had lousy track records in the investment arena. And so have the folks who invest in gold.

A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.

Jim is the author of a complete investor guide, Invest Informed, designed for average investors or would-be investors of all levels of financial background and experience. To learn more about investments and investing and his new financial guide go to http://www.investinformed.com

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