Gold Vs Shares
Gold and shares can both be attractive options for investment. However, while the rewards from shares can be big, they come with big risks. Gold is about long-term security and protection against uncertainty.
The graph below tracks how much an investment of £10,000 in gold and one on the FTSE 100 would be worth, tracked against inflation from 2000.
As you can see:
- An average FTSE 100 investment of £10k: is only worth a little over £35,795.
- £10k invested in gold: would have been worth £70,710k at the end of 2023, significantly more than the rise in inflation
Investment Risks
Stock markets in 2023 had a volatile year. After surging inflation prompted a rapid rise in interest rates, both have finally slowed, but the future is far from certain. Global growth is expected to be muted in 2024 as consumers and businesses nurse an inflation-induced hangover, with high rates adding to the pain. Meanwhile, markets remain wary of geo-political and economic shocks like the bank collapses of 2023 and the Israel-Hamas war. After several years of uncertainty, 2024 looks likely to be as unpredictable as all the rest.
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The Safe Haven of Physical Gold
Gold on the other hand has proved time and time again that it can protect against financial uncertainty and offer a chance to grow your investment portfolio. In sterling terms, gold rose around 15% in 2022, and long-term growth has vastly outperformed other asset classes. Meanwhile, the upsurge during the pandemic was a reminder to gold investors that it can be very effective protection in these volatile times.
Comparing Shares & Gold
Physical vs intangible asset
Gold
Gold’s rarity and immutability are the key reasons behind its abiding value. It’s a physical asset that can be held and owned directly which reduces any counterparty risk.
Shares
Shares are a form of intangible ownership. They are dependent on counterparties (the company, the stock market, the banks) upholding their obligations when buying or selling the shares. In the digital age, there is no longer even a physical share certificate.
Income Stream
Gold
Gold does not provide a regular income stream, instead it relies on an increase in value to realise a return on investment. For thousands of years gold has increased in price, retaining its buying power across the decades. This steady rise provides gold with its safe-haven credentials.
Shares
Depending on which shares you invest in, many provide dividends – money paid to investors from company profits which means that investing in shares can provide a regular income. This income is not guaranteed though, and dividends can change over time (be cut as well as increased) depending on how the company performs. The value of the underlying shares can also change, including falling to zero if the company fails.
Portfolio role
Gold
Gold within a balanced investment portfolio is used to hedge risk and in some cases inflation. It is a safe-haven asset which maintains or increases its value over time. Gold often increases when there is volatility in other markets and asset classes as investors look to protect their assets. It can also increase in value during calmer times as it rises along with other commodities and goods, acting as a relative hedge against inflation.
Shares
Stocks usually form a substantial part of an investment portfolio as there is a good opportunity for returns. Historically stock markets have provided good returns in times of market stability. But it is risky as this stability is not guaranteed. Investing in stocks is risky as individual stocks can be impacted by business decisions, while economic factors can have a negative effect on stock markets.
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