- 11 Jun 2021
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They say that money can’t buy happiness, but it certainly plays a huge role in your health and wellbeing. You need money to pay your bills and afford a comfortable life, so you should keep money in mind when planning for your future. Like any savvy saver, you want to put your money towards the most beneficial investments. While stocks, bonds, and other paper investments may have a place in your portfolio, they do not provide much security. This is where gold shines.
Although you shouldn’t expect to suddenly become rich by investing in gold bullion, it is a great way to outpace inflation and secure future monetary growth. After all, if your money is not growing at a rate that beats inflation, then your assets are basically losing value every year. This comprehensive guide will help you better understand what gold is, how it relates to the economy, and why it’s a great investment for long-term growth and stability (and also why it is our favorite investment to protect against inflation).
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Why Is Gold So Valuable?
Gold and other precious metals have been valued since the dawn of civilization. Due to its rarity, people from all around the world have coveted gold. Throughout most of history, gold was used to adorn jewelry, palaces, clothes, and ceremonial items as a way for individuals to show off their wealth.
These days, although gold is still valued for its beauty, it also has many practical applications. For example, gold is heavily used in dentistry and circuitry. With the ever-increasing ubiquity of cell phones, computers, and other digital devices, it’s no wonder that demand for gold continues to increase. Unless someone finds an unprecedentedly massive deposit of gold in an accessible place, the price of gold should continue to rise in the foreseeable future.
What’s the Difference Between Bullion and Coins?
When someone refers to gold bullion, they’re typically talking about bars of pure gold. The value of bullion is based solely on the value of the metal itself. There is no consideration for its history or value as a part of a collection. Coins, on the other hand, derive their value from their rarity and historical circumstances.
For example, a rare gold coin from the 1700s may be much more valuable than an equal amount of gold bullion. While gold coins may carry more value, they are also much more volatile. New gold coins are uncovered every day, so any given coin can lose or gain a ton of value in a matter of minutes.
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What Are Fiat Currencies?
Up until the middle of the last century, most countries used to tie the value of their money to gold or silver. A century ago, you could have exchanged your dollars for an equivalent amount of gold at the bank, but that’s not the case anymore. Today, countries issue fiat currencies.
A fiat currency is a currency whose value is not based on any tangible asset. Countries can just print fiat currencies as they please, and they don’t have to worry about how their money relates to the supply of gold, silver, or any other commodity. Dollars, euros, and all other national currencies can be considered fiat currencies.
Instead of basing the value of the currency on any tangible asset, the value of a fiat currency is based on the faith and feelings of the people who use it. Fiat currencies are useful for governments because they can quickly manipulate the money supply without having to consider the value of certain commodities. However, because of this, fiat currencies are vulnerable to extreme volatility and inflation.
Why Does Inflation Matter?
In short, inflation is when prices rise, so the value of a single unit of currency has less purchasing power than before. For example, you may have heard an older family member mention how a loaf of bread used to only cost a dime. Because of inflation, that loaf of bread now costs over a dollar. This is true for most commodities, and it clearly illustrates how the value of fiat currencies decreases over time.
In the United States, inflation hovers around two percent every year. Under normal economic conditions, inflation is inevitable. Therefore, if you don’t invest in something that grows in value at a greater rate than inflation, then you are effectively losing money. Over the past 15 years, the value of gold has increased by a whopping 330%, and the value of gold is expected to continue to increase at a similar rate. By investing in gold, you can safely beat inflation over long periods.
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Biggest Benefits of Investing in Gold
Because the value of gold grows so steadily, investors don’t have to worry so much about volatile prices. Unlike with stocks and other paper investments, you won’t have to worry about massive changes in value over short periods. Instead, you can just leave your gold alone and remain fairly confident that it will continue to increase in value. This can save you a lot of stress and heartache in times of economic turmoil.
Paper investments can be lucrative, but a stock’s price may rapidly diminish within a matter of hours. Even worse, a company may go out of business, causing its stocks and bonds to become completely worthless. In contrast, gold is just a metal, so it can’t go out of business. While some companies work with gold and depend on its market factors in some way or another, the value of gold will never be affected by bad management or poor public relations.
Gold Requires Little Space
Gold is extremely value-dense. As of June 2021, an ounce of gold is worth $1,875. To put that into perspective, a single ounce of gold takes up about as much volume as a standard die. You can fit hundreds of dice in a small drawer, so unless you plan on buying thousands of ounces of gold, space won’t be much of an issue.
Gold is easy to store, but you want to be mindful of where you keep it. For optimal security, you should keep it in a durable safe, and it should be difficult for other people to find. Also, if you don’t want to keep it on your property, then you can always put it in a safe deposit box at your bank for a very low fee.
Independence From Digital Networks
In this day and age, most paper investments are recorded in digital ledgers. That may be very convenient for everyone involved, but it comes with a host of risks. Cybercriminals become bolder and more creative every day, so what would happen if they hacked into your account or messed with your digital investing platform?
You could potentially have your assets stolen, or the data could be deleted from the platform entirely. While these possibilities are rather unlikely, you should still be mindful of the risks associated with keeping all of your assets in digital spaces. By keeping a physical supply of gold, you will have a liquid asset on hand in the event of an unexpected network failure.
Global Demand and Liquidity
Governments, companies, and individuals all around the world are buying gold at an unprecedented rate. No matter where you go, people will value gold and other precious metals. Consequently, you can easily convert your bullion into almost any currency at an extremely fair rate. On top of that, compared to other investments, gold is an extremely liquid asset.
While it may take several hours or days to sell a stock or bond, you can find reputable buyers for gold almost anywhere. Many brick-and-mortar businesses buy gold at fair rates, so you don’t have to worry about meeting with some unfamiliar person at an unsafe place. In a matter of minutes, you can find a buyer, determine their legitimacy, go to their location, and convert your gold into usable cash.
Quick and Easy Verifiability
Unlike some commodities, it’s extremely easy to determine whether you’re buying real gold at a fair price. Because gold is so popular, you can quickly look up its fair market value anywhere in the world. Also, gold is very visually distinct, so it’s hard for scammers to construct convincing counterfeits.
Keep Your Assets Private
You may not want people to know about your investments or financial situation. However, records of your ownership of paper assets are available to the public. Gold, on the other hand, is much easier to hide. No strangers, friends, or family members need to know about the gold that you keep in your safe.
Gold Is Easy to Understand
Stocks can be incredibly complex. Selling a stock even a few minutes too late can cost a person thousands of dollars. On top of that, stock options and other market mechanisms can be very volatile and difficult to understand. To get the most out of your paper investments, you have to spend a ton of time focusing on various minutiae.
In contrast, gold requires much less micromanagement. Typically, gold continues to increase in value as time passes. While there may be occasional dips or slow growth, you don’t have to worry so much about buying and selling your gold at the perfect time. As long as you have a little patience, gold is a foolproof investment.
Things to Keep in Mind
Gold Is Very Fragile
The malleability of gold is great for microchip manufacturers and jewelers, but it’s not as beneficial for the average person. Gold can be easily chipped, scratched, and damaged. Therefore, it’s extremely important to be very careful with your gold and store it in a secure place.
Gold Bullion Is a Long-Term Investment
You will not become instantly rich by investing in gold. Gold grows at a relatively stable pace, so there are not many sudden changes in value. If you’re looking to invest in your future and hedge against the market, then gold bullion is a safe bet. However, if you’re primarily looking to speculate, then you may want to look into buying silver or investing in stock options.
Subtlety Is the Best Approach
Because gold is stored in a physical place, it is often the target for robbers and burglars. Therefore, if you keep gold in your home, you should be very careful about telling anyone about it. Criminals love to eavesdrop to find new leads, and a simple slip of the tongue could put a target on your back.
Coins Carry Greater Risk
Gold coins are valued by collectors, and the price of any individual coin can change rapidly. If you enjoy history or want to speculate with gold, then investing in a few gold coins isn’t a bad idea. However, you shouldn’t expect gold coins to be as stable or liquid as bullion.
Furthermore, there are more scams and sketchy people in the gold coin market. An unscrupulous seller may try to pass a coin off as something rarer or more valuable. Therefore, to protect yourself from dishonest people, you should only buy and sell coins with the help of a registered numismatist.
Be Mindful of Taxes
When you decide to sell your gold, you have to report that income to the relevant tax bureaus in your area. Otherwise, you could be accused of tax evasion. Depending on how long you held the gold before selling it, you will be subject to some kind of capital gains tax. To ensure that you’re following the rules when you file your taxes, you should consult with a reputable accountant.
Gold Is a Great Option for Long-Term Planners
Over the past century, the value of gold has risen drastically. Companies may go out of business, and society will change, but the demand for gold will continue to grow. If you want a safe, stable, and liquid investment that you’re willing to stick with for a long time, then gold is the perfect asset for your needs.
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