Gold has a long history as a store of value and as a safe haven investment, especially in times of economic turmoil, political instability or market volatility. Yes, you should buy gold and hold physical gold in your investment portfolio. But is this the best option to manage your money? In addition to gold, there are many safe alternatives that provide higher returns. Let’s take a look at those options.
HISTORY OF GOLD AS A SAFE HAVEN
People have this natural reflex to buy physical gold in times of crisis. This goes back to ancient civilizations that used gold as a form of currency. In general, gold has maintained its value in different societies, cultures and time periods ever since. Here are some reasons why gold has traditionally been considered a safe and sound investment.
1. Intrinsic value
Unlike stocks or bonds, gold has intrinsic value. It is a tangible asset.
2. Limited supply
The finite nature of gold makes it valuable. There are costs associated with mining it and there is a limited amount in the world.
3. Liquidity
Gold can be easily converted into cash, making it a liquid asset.
4. Protection against currency devaluation
Gold is often seen as protection against inflation and currency devaluation.
5. Diversification
Adding gold to a portfolio can provide diversification, which in turn can reduce risk.
6. Negative correlation with other assets
In many cases, when stocks fall, gold prices rise, providing protection against market declines.
TODAY GOLD ISN’T SUFFICIENT AS A SAFE HAVEN
Gold is undoubtedly a popular and good choice to secure your money. But if you just buy gold today, that’s not good enough anymore. Diversification is key. These are some disadvantages and limitations that make gold unsuitable as a standalone safe haven.
1. No Yield
Gold by itself does not generate income like dividends from stocks or interest from bonds.
2. Storage Costs
Physical gold requires secure storage, which often comes with a cost.
3. Price Volatility
Contrary to its status as a safe haven, gold prices can be quite volatile in the short term.
4. Market conditions
In a modern, complex financial system, gold does not always behave as a perfect hedge against other financial instruments. The gold price can be manipulated.
5. Opportunity cost
Money invested in gold could potentially generate higher returns if invested in other assets.
6. Risk of loss
Physical gold kept at home is at risk of being stolen or lost.
7. Difficult to take on travels
By default you can only take a limited amount of gold across the border and on the plane.
8. New financial products
The financial market has developed a plethora of sophisticated instruments that you can use to optimize your risk management way more effectively.
SECURE ALTERNATIVES TO GOLD INVESTMENT
Today there are many financial products on the market that are considered safe and are used to protect against inflation. So you can buy gold and complement it with the right financial products. This is the best strategy to protect your purchasing power in times of crisis. Here is an overview of the most well-known financial instruments.
1. U.S. Treasury Bonds
These are considered one of the safest investments and are backed by the U.S. government.
2. U.S. Treasury Bonds
These are considered one of the safest investments and are backed by the U.S. government.
3. Dividend-Paying Stocks
Companies with a history of stable dividend payments can offer a safer bet during economic downturns.
4. Cryptocurrency
Some consider digital currencies like Bitcoin as digital gold. Yet it is far more volatile and still relatively unproven as a safe haven.
5. Utility stocks
Utilities tend to be less sensitive to market cycles and offer stable returns.
6. Foreign currency
Some choose to diversify currency risk by holding stable foreign currencies.
7. Precious metals other than gold
Silver, platinum and palladium are also considered by some as safe haven assets.
8. Commodities
Other commodities such as agricultural products can also serve as protection.
9. Money market funds
These are considered a low-risk investment and offer easy access to your money.
Each alternative described above has its own set of advantages and disadvantages. The best choice depends on an individual’s specific financial situation, risk tolerance and investment goals.
BUY GOLD AND A SAFE ALTERNATIVE WITH HIGH RETURN
In conclusion, we can say that both are desirable in your investment portfolio. Yes, buy physical gold. Yes, add a safe alternative that also generates returns. People say: high return for high risk and low return for low risk. For many financial products this is certainly the case. But it can be done differently.
In our Co-Creation Circle, Impact Finance, we research and develop solutions for financing and funding of Impact projects. For this we work together with seasoned high finance professionals, experts in risk management, who develop customized sophisticated financial products on a daily base. Together we have co-created win-win-win Impact Lending, a secured formula with low risk and high return for the lender. In addition, this provides a monthly working budget for our Impact Projects.
In a next blog, we will discover how professionals do risk management. This is the answer on how it is possible to secure your money while generating high returns.
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