As stock markets plunge over coronavirus fears, the gold price is rising. That isn’t surprising, the precious metal is the world’s oldest store of value, and investors embrace it in times of trouble. Cash ISAs fulfil the same function, and some argue that crypto-currency Bitcoin does as well.
Many investors will be wary of the FTSE 100, which is now in correction territory, having fallen just over 10% since its high of 7,674 in mid-January, trading at 6,874 at time of writing. However, this would still be my preferred place to invest my long-term wealth, tax-free through the annual Stocks and Shares ISA allowance. Here’s why.
The gold price has climbed almost almost 5% over the last month to $1,651. The Pure Gold Company reports a 624% rise in customers pulling wealth out of shares and bonds, and using it to buy gold instead. I would think carefully before doing this. While gold offers some ballast against falling share prices, its price can also be volatile, and may fall back when coronavirus fears eventually pass.
I’d buy shares over gold
Gold does not pay any interest, whereas stocks and shares reward you for holding them, by paying regular dividends. Right now, the FTSE 350 offers an average yield of about 4.5%. If you reinvest this back into your portfolio to pick up more stock or fund units, you will turbo-charge your total returns.
Cash may tempt those unnerved by this week’s crash. However, with the best instant access Cash ISAs paying just 1.31%, you are getting a poor return on your money. Even if you lock your funds away for five years, the best you can get is 1.7% today. Cash is no longer king.
As for Bitcoin, its price movements put this week’s stock-market volatility in the shade. Having soared to around $10,600 a week or two back, it has since slumped to $8,800, a loss of nearly 17%. From here it could go anywhere, fast, and unlike stocks, it won’t pay you any income along the way.
Stick with it
Selling out of the stock market now is particularly dangerous. Up to this point, your losses are paper ones, but selling makes them real. You will also sacrifice all those juicy dividends, while you are out of the market, and face the tough decision of when to buy back in. There is a good chance you will leave it too late, and invest after markets have recovered.
If you do that, you could end up buying back into the market at a higher price than you sold, which makes no sense at all.
I know it isn’t easy, but if you are investing for five years or more, you just have to grit your teeth and stick with it. Equities drop from time to time, that’s what they do, but history suggests that they always bounce back, given time.
If you are feeling really brave you could even take this opportunity to buy more shares. After all, they are 10% cheaper than a month ago.