Is it worth investing in gold?

grey_gym_sock

DiggerUK wrote: »

Bulk was purchased between 2005 and 2010.........the point I was emphasising, is that despite the massive fall in price it has still shown to have been a sound decision. 'Returns' as measured by being ahead of inflation, are more favourable than NSI Index Linked, which is why we stopped rolling them over.

then you have received a very similar return to NSI index linked - so far. but NSI index linked would be 100% reliable; it couldn't suddenly halve in value. whereas gold is at least as volatile as equities; so you have embraced casino-style uncertainty, as surely as if you had gone into equities, but without the likelihood of higher returns to compensate, which equities would give you. you have the worse of both worlds: low returns, like NSI; but higher volatility, like equities. that's not a sound decsion, at all.

Yes, being in equities for the last five years would have done us well, we just decided that it would be wiser to walk out the casino with our winnings and put them in a safe place, and we have been proved correct to have done so.
Safe havens are, as safe havens duzz.
..._

so you walked straight into the gold casino. which is as risky as the equities casino. but with the odds stacked against you. (i.e. like a normal casino. equities are less like a normal casino, in that the odds are more in your favour.)

there's nothing wrong with knowing little about investment, like the OP. we all have to start somewhere. the key is being prepared to learn. this is where you're going wrong, digger.

there's also nothing wrong with shunning risk. equities are not for everybody. but if you don't like equities because of the risk, you shouldn't like gold, for the same reason.

bowlhead99

DiggerUK wrote: »

If you stay in a casino long enough.....guess what?

It depends whether you are taking the role of casino customer or casino banker.

The casino customer has a long term negative expectation and so if he has made a bit of money he should quit and run for the hills. The casino owner has a long term positive expectation and so whether he has made a bit or lost a bit he should stay in the game for the long term.

Being an investor in a broad portfolio of equity and bond and real estate funds is like being the casino owner. There will be ups and downs along the way but all the underlying assets have a long term positive expectation so you can just stay in the game forever.

Bulk was purchased between 2005 and 2010.........the point I was emphasising, is that despite the massive fall in price it has still shown to have been a sound decision. 'Returns' as measured by being ahead of inflation, are more favourable than NSI Index Linked, which is why we stopped rolling them over.

When you say your average is 'under £650' I'm going to just assume something like £630, because if it was a long way under you would have said 'under £600'. And if you were buying mostly between 2005 and 2010 with only a few more expensive purchases since, shall we assume summer 2008 as weighted average buy date?

So, over the last ~7 years your pile of metal has gone up from £630/oz to £740, or ~17.46%. That's a compound annual return of just 2.3% a year. Over the 7 year period CPI inflation was 17.4% (annualized 2.3% a year) and RPI 19.4% (2.6% annualized).

Obviously my figures for your returns are just guesses, but seems you have struggled to match inflation really and may not have beaten a fixed deposit bank account.

Yes, being in equities for the last five years would have done us well, we just decided that it would be wiser to walk out the casino with our winnings and put them in a safe place, and we have been proved correct to have done so.
Safe havens are, as safe havens duzz.
..._

If you were previously making risky casino bets, there is nothing wrong with leaving the casino and moving to a safe haven. However, you moved to something which went from £450 in mid 2008 to over £1150 three years later and back to £700 last month. That doesn't sound like a safe haven, it sounds like a volatile commodity. I'm not sure you can say you were "proved correct to have done so" without looking at what would have happened if you had not bought gold and had instead bought equities or simple cash fixed deposit accounts at 2,3,4,5+% which were available over the timescale.

So in summary I'm unconvinced that Digger Mansions has shown great financial acumen - fortunately they invested at the right time not to be showing serious losses (£1160 peak to £700 last month is -40%) but their actual returns seem worse than an equity or bond porfolio, without removing risk, outperforming bank accounts or creating a source of income.

Also it sounds like 'moving to a safe haven' is something that Digger did after first creating the bulk of their wealth elsewhere. For the OP looking to create the wealth in the first place, gold would seem a poor choice if all it does is provide a hedge against inflation.

All imho of course.

gadgetmind

jimjames wrote: »

you still aren't "wiped out" if you have invested in a good mixed portfolio.

Yup. Last week, I rebalanced our ISA and SIPP portfolios, partly because I knew that EM would be under target allocation, but also because they were accumulating a lot of cash as dividends rolled in.

One REIT had done very well so I top sliced, ditto a FTSE 250 tracker, and some fixed interest nearly got the same treatment. But I mainly used excess cash to top up Asia Pacific, EM. and a mining IT. Now cash is back near 5%, I can doze off for at least another six months.

Chickereeeee

Masomnia wrote: »

I remember in 2010 one of my housemates who has no experience in investing whatsoever was talking to a mate of mine and I overheard him saying 'I've heard gold is a good investment'. I thought at the time if I owned any that would be as strong a sell signal as you're going to get! No disrespect to my mate.

If ONLY that worked with houses...

C

atush

Originally Posted by DiggerUK View Post
Despite everything claimed about gold in this thread, all our saving and investment gambles over the years have been preserved in our gold holdings.
The stubborn fact still remains the sub £650 per ounce average that it cost us, that is despite the massive fall in price since September 2011.
Until we see prices fall, and stay under our £650 cost average, it is Digger Mansions that is shown to provide sound long term financial acumen.

Gold, not greed, is good .

bowlhead99 wrote: »

I agree long winded posts can't change facts. What they can do is perhaps shed extra light on short posts.

For example, if someone had bought a load of gold in the good old days when it was available at normal prices (the price had always been lower than £650 up until 2009), they might very well be sitting on reasonable gains .

Exactly.

Some (like me) who put a bit into gold when it was unloved (not sub 650 quid, but sub $700!) are sitting on some lovely gains. Even if i sold half when the price went over $1400.

So despite the very low cost of the rest of my gold, I still say to the OP and other newbies: Dont invest in gold, unless the price is low (it isn't) and unless you have done all the other normal things like paying off debt, having a well funded pension, and having cash and other investments outside of a pension.

redpete

ValiantSaint wrote: »

I have posted on here a few times about where to save my money (and to get a decent return) but I'm still none-the-wiser about what to invest it in.

So none of the previous advice about how to exploit interest-paying current accounts has helped?

I was chatting to a friend and they suggested investing in gold. Is this a worthy place to stick my money?

Put them together with your other friend who suggested investing in equities and see who wins the argument.

themanfromamarillo

OK, going back to the original poster's question and more general problem (s)he's highlighted in a couple of threads.

What is your investment timeframe and goal? Think about it for a while, will you need a bit of cash in a year or two's time for a new car or for stuff for a future kid? If so maybe think about securely saving money in either a high interest current account or a regular saver. Some of these accounts have one year terms or offers. That means you need to move stuff around after a year.

I know you mentioned it seems like too much hassle, but is it really? It's an hour or two to set up a high interest current account or two and get the standing orders/direct debits moving money between the accounts (or just paying in your salary). Then in the end you'd get a few hundred quid a year in interest a year (tax free from April if you have less than £1000 per year in interest). If you got offered two hours of overtime at £100 an hour what would you do?

You also mention not being impressed with the interest rates on offer. Over the long term the return on capital (shares/land/cash/bonds) is about 5%. Some things like shares might have a higher return but they also have higher volatility (some years they lose money) so aren't good if you need the money in the short to medium term. Some things like cash have lower returns because they are less volatile. If you were to put money in a high interest current account you'd get 3-4% (or 5% with 2k in TSB) and the security of knowing that £1 in there will be worth £1.05 (or £1.03 or £1.04 depending on the account) next year no matter what the stock market or gold prices do (alhough inflation will probably mean that £1.05 will buy a bit less than £1.05 today). These rates are pretty good compared to interest rates in general, I had an American friend visiting a few months back and we walked past a branch of Santander, he was shocked you could get 3% interest, it's sub 1% over in the US for anything other than a 5 year deposit.

If you think you could survive for 10 years or so without touching the money you want to invest (and don't have big items you need to purchase in the next few years) then maybe look at investments in shares or bonds. This is only appropriate for things like saving for your kid's tutition fees or your retirement, not to get you rich quick, more get rich slow. But please do a lot of research, don't invest in something you don't understand.

Finally gold, as mentioned before is a way of hedging against inflation. There are other probably better ways of doing that (index linked bonds as mentioned by others) and small investors have access to things like high interest current accounts that will probably beat inflation anyway. Any sort of "it's gone down so it must go up" on gold is speculating, not investing.

DiggerUK

atush wrote: »

........Some (like me) who put a bit into gold when it was unloved (not sub 650 quid, but sub $700!) are sitting on some lovely gains. Even if i sold half when the price went over $1400.So despite the very low cost of the rest of my gold, I still say to the OP and other newbies: Dont invest in gold, unless the price is low (it isn't) and unless you have done all the other normal things like paying off debt, having a well funded pension, and having cash and other investments outside of a pension.

Digger Mansions took the decision to go in to gold for a number of reasons. A major factor was how we viewed the risks of equity investments, and the economy in general....there are still more red, than green flags.
An economic decision on such a monumentally important decision as the long term security of our retirement savings, was, and remains paramount in our thinking. To ignore the politics in that process is just foolish at best.

QE is always an option, Draghi and the European Central Bank have an open option on expanding the money supply, which will more than likely sugar rush equities again; and ZIRP rates are in the file marked "whatever it takes".....and that's just Europe.
If there is anybody here who seriously thinks that the economic problems have ended, then I am once again seeing people drinking. "it's different this time wine" from a new bottle.

Our debate is not over by a long way; neither are the problems of debt held by governments, corporations, banks and individuals.
..._

atush

Well digger mansions should have done some more and better research before betting the farm on gold. Esp as you viewed the risks of equities over a long period as being higher than gold (and it isn't). Equities have outperformed gold over the long term for over 100 years.

Not to mention you dont understand Diversification. Sure some gold could be useful at 2% or less of a person's wealth, but not 100%. Or all % over and above the value of the family home.

Digger mansions must be in crazytown.

DiggerUK

Diversification to me is akin to placing as many bets as possible on a roulette wheel; it's fine in a boom like the one that ended in 2007, and has been rekindled now with QE and ZIRP, but risky in the near future. Many are still feeling the effects post 2007 don't forget.

The conclusion that is drawn from our 'portfolio', which is very high in gold, is that it has been stress tested with a real time devaluation of 40+% over four years and, we are still in positive + territory.

Now stress test your portfolio with a 40+% devaluation and tell me how diversification serves you better.

..._