Gold’s been popular with many investors over the past few years. And it’s often seen as a store of wealth for troubled times. But with the price near $1,700 an ounce, its performance has been patchy. And it’s not the vehicle I’d choose to aim for a million.
Over six months, the metal is down just over 13%. And over the past year it’s a little over 3% lower. But it’s risen by 32% over five years.
However, gold investors with a longer-term horizon have fared better. Over two decades, the shiny stuff has risen in price by a whopping 435%.
A developing opportunity in shares
But historically the gold price has struggled to make progress when interest rates are on the rise. So, I’m forgetting gold after its long run higher and concentrating on stocks and shares.
Gold could move higher in the months and years ahead. But I think my best chance of achieving meaningful long-term gains from a £25k investment is by careful stock-picking.
The stock market has been volatile since the pandemic arrived. And the war in Ukraine caused more difficulties that added to the problems. But valuations have been driven lower for many companies. And that situation has led to what looks like a decent opportunity to buy cheap shares.
My plan would be to hunt for good businesses now with the aim of holding their stocks for the long haul. I’d look for enterprises that have the potential to grow their earnings in the years ahead. And I’d aim to buy now while their valuations are depressed. However, there’s no guarantee of a positive long-term outcome with any business. They can all experience operational difficulties from time to time.
Yet Terry Sandven, chief equity strategist at US Bank Wealth Management, recently had some words of encouragement for investors. He said history shows that those with long time horizons tend to experience favourable returns. And that’s because the year-to-year gyrations of returns, both positive and negative, “get smoothed out of the longer time period”. And he added that the effect “applies to both active and passive investment styles”.
Impressive gains
Meanwhile, super-investor and billionaire Warren Buffett offers us a good example of what Sandven is talking about. Every year in his letter to the shareholders of Berkshire Hathaway, Buffett points out the compounded annual gain of America’s S&P 500 index. And that’s interesting because the index includes 500 leading publicly traded companies in the US. And it’s often regarded as one of the best gauges of the stock market overall.
According to Buffett, the compounded annual gain of the S&P 500 between 1965 and 2021 was 10.5% with dividends included. And that suggests even passive investing into index tracker funds has the potential to deliver meaningful returns over time. Although future positive outcomes are never certain.
However, Buffett did much better over that long period delivering a compounded annual gain of just over 20% from his investments within Berkshire Hathaway.