Is it worth investing in gold?

bowlhead99

DiggerUK wrote: »

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.

..._

That seems a bit of a ridiculous thing to propose.

My (diversified) portfolio has made well over 100% over my lifetime (I won't try to work out exactly how much, because not relevant for this thought experiment). So, I can happily say that if I tweak my portfolio to dump 100% of it or 90% of it or 80% of it into a single asset class like gold or diamonds or palladium or barrels of oil or global largecap equities, tomorrow, which lose 50% over the next three to five years, I would still be in positive territory overall.

So I could quite easily "stress test my portfolio with a 40+% devaluation and be absolutely fine" because my broad portfolio already made its money.

A broad portfolio could lose some money over the next x years from here, though one would hope that a diversified broader one would lose less of course than a specialist concentrated portfolio.

But it is an absolutely useless test. I don't want to lose 40-50% from here. So, I'm not going to be 100% in one asset class, I am going to hold uncorrelated assets which have sound reasons why they will grow with the economy. Your contention seems to be that your asset class made you a bunch of money as it went up from average buy price of £500/oz to £1100/oz, and therefore it is fine if you give up half your value, you will have passed the stress test. So you think your contention that nobody ever loses money investing in a safe haven, is fine, just because it worked out OK for you buying at the right time and place.

While you might not be wiped out in nominal terms, with only 15-20% return over 7-8 years, you are at pretty much zero in real terms as it stands, so if you lose another 20% which could quite feasibly happen you are lossmaking. Others will be 40% down already. This from an asset which is a "safe haven".

atush

Yep, crazytown.

ValiantSaint

themanfromamarillo wrote: »

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.

Thanks (I'm a he BTW) To be fair, I have other money saved, so I'm not too bothered about how long it takes to mature. I just want it put somewhere to gain interest and be safe

atush

well you wont 'gain interest' with gold.

I you have cash sufficient to tide you over for 6-12 months, look to a S&S isa using a lifestyle fund like the vanguard series.

Or stay in cash (and suffer shortfall and inflation risk) and put it in a current acct paying 3-5%

Chickereeeee

DiggerUK wrote: »

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.
..._

Best time to invest, surely? If all the "flags" were green, the next step could only be for red ones to start appearing again.

When would you rather be 'in': when the red flags turn green or the green flags turn red?

C

Malthusian

If there's one thing I've learned about finance, it's that you should always take advice from people who refer to themselves in the third person. Always.

jimjames

ValiantSaint wrote: »

Thanks (I'm a he BTW) To be fair, I have other money saved, so I'm not too bothered about how long it takes to mature. I just want it put somewhere to gain interest and be safe

Do you understand that gold does neither of those things?

Gold does not pay interest
Gold has no fixed value and can go down as well as up

gadgetmind

Catie_the_Investor wrote: »

If you buy either at the right price and sell at the right price, the result is the same.... profit. Buy and sell either at the wrong time ... loss

True to a certain extent, but holding shares in productive companies creates income, which can but more shares, which compounds nicely over the decades.

I wonder if anyone was as crazy as my husband and ''invested'' in Northern Rock:). Never had the same problem with gold.

Investing too much in a single company or sector is a high risk strategy. As long as you diversify, then you can't go too far wrong.

AndyT678

Catie_the_Investor wrote: »

I'm not sure why some would feel that stocks and shares are ''an investment'', whilst gold is not.

Because when you invest in stocks and shares you're actually buying a small pieces of companies. Those companies take your money and use it to manufacture goods, perform services, employ people, pay taxes and generally make the world go around. They make profits which they sometimes choose to repay to the owners (shareholders) in the form of dividends so you get income and as the scale of their business grows your piece of it becomes more valuable so you get growth. This is an investment.

Gold just sits there doing nothing but costing you money to insure it. It's value may go up or down in the future. This is speculation.

gadgetmind

Catie_the_Investor wrote: »

You may invest much time in investigating a particular company, but you can't be certain that your investment will do well.

Which is why novice investors (and perhaps not even seasoned ones!) should *not* be buying shares in single companies. If you diversify (across asset types, territories, sectors and companies), and have a long time window, then the game is very much rigged in your favour.

Here are some numbers to show what a difference dividends make.

Dec30 1999, FTSE 100=6930, FTSE 100 TR=3141
Mar12 2003, FTSE 100=3287, FTSE 100 TR=1624
Jan30 2006, FTSE 100=5780, FTSE 100 TR=3141

The 3rd column is the FTSE 100 Total Return Index, which assumes that all dividends received are invested back into the FTSE 100. Even if you'd invested in the worst possible day in 1999 just before the Dot Com crash, 9/11, several wars etc. you'd have been back at break even by 2006.

Of course, then along comes the credit crunch!

Mar3 2009, FTSE 100=3512, FTSE 100 TR=2147

And the sovereign debt crisis!

Sep22 2011, FTSE 100=5041, FTSE 100 TR=3387

And all the recent mayhem!

Aug28 2015, FTSE 100=6248, FTSE 100 TR=4855

But wait. Look at that Total Return figure. It sure wobbles around, but even though the FTSE 100 is now well below the 1999 peak (and the new one this spring) the TR figure is around 50% higher.

And this assumes you invested in one go in 1999. If you'd been drip-feeding money throughout the many peaks and troughs, then this money would have been working alongside the dividend stream to buy you more and more shares, which generate more dividends.

Or you could buy some gold and stare at it while waiting for its value to go up. Or down.