Some investors see gold as a safe-haven in troubled economic times. And since the middle of 2018, the price of the yellow shiny stuff has been moving higher.
But at around $1,700 per troy ounce, the spot price of gold is near its all-time high. Perhaps that reflects all the economic uncertainty we’ve seen in the world. However, when it comes to investing in gold now, for me, there’s a problem.
Downside risks
What if – and you’ll need to use your imagination here – what if as the coronavirus crisis fades things start to look better economically? That’s the problem with markets trading near their highs – there’s almost always a lot of room for reversals. And if you are loaded up with gold or instruments following gold, a big improvement in the economic outlook could mean a lot of downside risk for you.
I’d look for safer investments than gold. But I wouldn’t entertain putting money in a Cash ISA either. There’s just been another lurch down in interest rates and that’s a direct consequence of general economic uncertainty. When economies are weak and threatening to slump, central banks tend to use monetary policy to try to stimulate economic activity. And that means lower interest rates.
Low interest rates have become the new normal. Indeed, money salted away in cash savings is worse than dead money because it’s more likely to be losing its spending power rather than being a store of value.
Shares – the enduring asset class
Instead of gold and Cash ISAs, I’d turn to shares trading in the stock market. Studies have shown that over the long term, shares in aggregate have outperformed all other asset classes. Indeed, over long time frames, investors have seen greater returns from shares than they have from property, bonds, and cash savings, for example.
And that makes sense when you think about the resilience of many businesses underlying stocks. A business is a dynamic thing. It can grow its asset base and earnings as it expands. It can cope with inflation by putting up its selling prices. And it can gear up or down financially to suit its opportunities and to adjust to the prevailing economic conditions.
Businesses can do many things, and holding a well-diversified portfolio of company shares can be a decent route to getting rich and retiring early. But I reckon the key to successful long-term stock investing is to choose your individual shareholdings carefully. Businesses differ in their underlying strengths and weaknesses. For me, the best course of action is to deal only with the best and highest-quality stocks available.
And we can find many in the FTSE 100 index of the UK’s largest public limited companies. I’d diversify across several and aim to buy them when a short-term set-back has caused the temporary suppression of profits and share prices – such as right now!