Add a Little Glitter to Your Portfolio
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You would have had to be living under a rock for the last couple of years to be unaware of the phenomenal rise of gold.
Now, many investors are questioning – is it too late to get in on this rally?
On the pro side, there is no shortage of folks who say gold is a fool-proof investment. The advantages they tout include:
• Its historic value as an inflation hedge when the purchasing power of the dollar is eroding.
• The scarcity factor – you can’t make gold; it has to be mined, and there is a limit to the amount available around the world.
• Global affluence is growing, creating a booming demand for the metal.
• Uncertain economic and political climates often send investors flocking to gold, driving its price up and frequently leading it to outperform stocks and bonds during those periods.
However, owning gold is not without its drawbacks:
• Its price is very volatile, with its value determined by supply and demand, which is dependent upon the cravings of investors.
• During stock market rallies, the price of gold often declines.
• While frequently a great short-term investment, over the long-run, the return of gold is outpaced by equity returns. A dollar invested in gold in 1969, according to the Wall Street Journal, would have been worth about $20 by 2006. During the same period, $1 invested in the stock market, as measured by the S&P 500 index, would be worth more than twice that amount.
• Although touted as an inflation hedge, gold’s value has not always kept up with inflation.
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