I just saw a web advertisement for one of many companies selling gold on the Internet. It said that “Gold is solid because it is liquid.” A phrase like that boggles my mind. Is this really true, and more importantly, is this important to an investor?
This brings up my own personal golden rule of investing: Never take advice from a salesman. If you want to learn more about buying gold, or mutual funds, or bonds, or stocks, never talk with anyone who’s going to try to sell them to you. This is like going to a Ford dealership wanting to get a straight answer on whether you should buy a car right now.
But back to gold. Precious metals are like any commodity, but to say that gold is liquid is technically true. Gold could easily be turned into cash because it has universally recognized value. But does that make it a good investment? Stocks and bonds also have universally recognized value and are bought and sold every day on exchanges. Whether or not any asset is a “good” investment depends on what it will likely be worth in the future, and for the past century or two, investing in capitalism — privately-held companies — has been the place to be for long-term growth.
Think about it this way: gold metal is an animate substance. It doesn’t build factories, hire employees, produce goods, or sell products. It just sits there looking pretty, waiting to be gold or turned into jewelry. It produces nothing. Stocks, and mutual funds consisting of stocks, are just the opposite, and aside from the last ten years, they’ve had a fairly decent rate of return.
That isn’t to say you shouldn’t have any precious metals in your portfolio. Setting aside between 5 and 10% for any speculative investing wouldn’t tip your portfolio too far out of balance. This method is described as “core and explore,” having a diversified core set of investments and then using the rest of “explore” things such as single stocks, precious metals, or anything else you have a hunch about. I have a Roth IRA with Charles Schwab, and I can buy gold through one of their commission-free exchange-traded funds (ETFs). This is better than buying the gold coins you might see on TV because I don’t have to worry about storing the gold in a vault.
What I’ve found truly frightening, however, is when I hear ads telling people how to convert their Roth IRA into a gold IRA. I have no idea what that really means, but it sounds like taking an entire investment portfolio and placing it in one commodity — gold. That’s so far out of balance, I can’t even describe it. However you choose to invest, remember to stay diversified. And never take advice from someone trying to sell you something.
Not all that glitters is gold.