Gold has had terrific run in recent years. Since 2020, gold has appreciated 200% while U.S. stocks appreciated around 100%. Naturally, many people have started asking the same question:
“Should I invest in gold?”
Our answer remains no — not because gold cannot perform well at times, but because we do not believe it is a reliable long-term investment compared to traditional assets like stocks and bonds.
Investor beliefs about gold have fueled its terrific run. For centuries, it has symbolized wealth and security, especially during uncertain times. Many people believe gold will protect them during market crashes, hedge against inflation, or provide safety if the financial system ever breaks down.
The problem is that history does not consistently support those beliefs.
Many consider gold a safe haven during volatile periods in financial markets. Unfortunately, this is not always the case. Let’s look at how gold fared during some recent stock market crashes.
- 2000 Dot com Crash: Gold declined over 17% in 2000
- 2008 Great Financial Crisis: The price of Gold declined nearly 30% in 7 months.
- 2020 Covid Market Crash: Gold declined 12% in one month.
Stocks declined significantly during each of these periods. Gold failed to serve as a safe haven in some of the recent market crashes too.
How does LPP help protect your portfolios during recessions? Individual bonds and cash serve as a better safety net for portfolios during major market corrections. We make sure you are only taking an appropriate level of risk in your portfolio with stocks and have a healthy allocation to bonds and cash as a ballast. If the market corrects, we have several years of your cash flow needs saved in bonds and cash so you don’t have to sell stocks when prices decline.
Another common belief is that gold protects against inflation. While that sounds reasonable, history again tells a different story.
Gold peaked around $835 per ounce in 1980. It then spent the next 27 years essentially flat, finally returning to that same price level in 2007.
Meanwhile, inflation averaged approximately 3.7% annually during that period. Investors who bought gold near its 1980 peak lost purchasing power for decades. In fact, it took roughly 45 years for gold to fully recover after adjusting for inflation.
Compare that to traditional investments over the same timeframe:
- U.S. stocks averaged roughly 13% annually.
- Bonds averaged around 9% annually.
No investment performs perfectly every year, but over long periods, diversified stock and bond portfolios have historically done a much better job of growing wealth and keeping ahead of inflation than investing in gold.
Another issue with gold is that it produces no income. Stocks pay dividends, and bonds pay interest. Investors are compensated simply for owning them, even during difficult markets. Gold does neither.
The only way gold investors profit is if someone else is willing to pay more for it later. Its return depends entirely on price appreciation, which can be unpredictable and heavily driven by investor sentiment.
That does not mean gold cannot outperform for stretches of time. It certainly can. But those periods are unpredictable and are often followed by long periods of disappointing returns.
What happens if the world somehow completely falls apart? If society truly reached that point, essentials like food, water, practical skills, and strong communities would be far more valuable than gold bars or coins.
Gold looks good as jewelry but simply has no place in an investment portfolio. Traditional assets like stocks and bonds make for better long-term investment options and provide a better foundation for financial success.