Investors regard gold as a safe investment because its price has little correlation with the stock market. During times of declining markets, investors rush to buy gold to save their portfolios from the downfall in the market. However, this doesn’t mean that the price of gold cannot decline. When the stock market rises, gold prices usually drop. But is gold suitable only as a short-term investment or is gold also suitable for long term investment? In this article, we will answer these questions.
Long-Term Gold Average Returns
Over the 30-year period between 1990 and 2020, gold generated a cumulative return of around 360%, whereas the Dow Jones Industrial Average (DJIA) generated a cumulative return of around 990%. But gold usually outperforms stocks and bonds in the short-term phases, depending on the period you analyze. For example, if we take the 15-year period from 2005 to 2020, gold outperformed stocks, generating a cumulating return of 330% vs. 153% returns by the DJIA index.
Investors like to hold those investments for the long term which give them capital appreciation as well as dividends. But gold does not pay out dividends and, therefore, it is not suitable for investors who want to generate fixed or regular income from their investments. Investment in gold also requires you to incur insurance and storage costs because it is a physical asset.
Why Should You Hold Gold for the Long Term?
While it is true that you won’t get fixed periodic income as you do with bonds and some stocks, the returns generated by gold over the long term are not something that you should ignore. Investment in gold provides stability to your portfolio during uncertain times and gives you a chance to earn higher returns as, historically, there have been numerous periods in which gold outperformed stocks and other asset classes.
Conclusion
Gold offers protection against inflation and as a store of value, which is one of the many reasons investors like to include gold in their portfolios. It depends on investors what they want to achieve with investing in gold. Gold provides benefits in both the long term as well as in the short term. Long term investors can protect their portfolios from high volatility and losses during turbulent times and provide them with reasonable returns over the period. On the other hand, even short-term traders can invest in gold if they think that the economic environment is suitable for investing in gold.
