Should I Buy Gold?

Uh-oh.

I’ve caused a fight with Jimmy and his missus.

All the poor bloke wants to do is to buy his lovely wife some gold … but it turns out she’s not having a bar of it.

Take it away, Jimmy...

Hi Scott,

I am old (71), and not a very bright bugger. I only know one thing: that my wife drives me up the wall because she regards you as her financial guru. I have tried to convince her that gold is a safe and profitable investment. She does not believe me, as you apparently take the Warren Buffet view that gold is not a good investment. Have you changed your opinion as the price of gold keeps skyrocketing daily?

Jimmy

Awesome question!

Yes, you are right, I’ve previously written that I don’t invest in gold, and since then the price has risen spectacularly.

Yes, the price could go much higher as the boom takes off and speculators chase higher prices.

So to your question: have I changed my opinion?

Not at all.

Let me explain:

The possibilities for investing your money can be overwhelming. There are more fads in finance than there are in fashion, and there’s always something more exciting to invest in: Bitcoin, shares, bonds, infrastructure, private equity — and of course gold and other precious metals.

So, I’ve come up with a simple, time-tested rule for deciding where to invest my money:

I only invest in things that regularly put money back in my pocket.

Chief of which are companies that pay dividends and properties that generate rent.

And that’s the rub: gold doesn’t generate any income. Which means that the only way you can make money is by hoping the price goes up, and then selling.

Yet that’s not how I invest. I actually don’t focus too much on the price of my shares, because I know that share prices can — and often do — move around quite dramatically in the short term.

So what do I focus on?

The dividends that are sent to my bank account four times a year. 

And, over the long term, owning a portfolio of businesses is the best way to not only safeguard your wealth but grow your income faster than prices rise.

A study by Wharton finance Professor Jeremy Siegal found that if you had invested $1 in gold it would be worth (approximately) $3 today. Yet if you’d invested that $1 in the share market in 1802 it would be worth $1,033,487 today.

That’s not to say that gold isn’t having an amazing run: it’s up 80% since its lows of 2015.

How long will it continue?

I have no idea — and no-one else knows either. But I think that’s the wrong question to ask.

Here are three better questions for you and your wife to ask yourselves:

Firstly, are you buying gold because you’ve got FOMO from watching it go up each day?

Secondly, you’re 71, mate — where are you getting your income to pay for things from?

And, finally, what would you do if gold went down 30%? Would you start panicking and sell at a loss?

If I watched my shares go down 30% (and I did, a few months ago!) I’d grin and bear it, knowing that my dividends were still rolling in.

Tread Your Own Path!