Many investors believe that gold is a safe long-term investment that can be used to hedge against risk. But should you include this precious metal in your retirement portfolio? Gold can be a highly volatile asset, with an unpredictable price that rarely correlates with stable growth. And this makes it a poor choice for the kind of dependable, long-term investing that retirement demands. Here’s what you need to know.
A financial advisor can help you create a financial plan for your future.
The History of Gold as an Asset
Gold is a commodity, which is defined as a raw material like an agricultural product, a mineral or ore. Investors buy commodities largely for two reasons. In some cases, they want the commodity for practical purposes. For example, a roaster might buy coffee futures because they want to use those coffee beans and are trying to set their prices in advance of taking physical possession of the beans. In other cases, investors may want the commodity for financial purposes. For example, a fund might buy coffee futures because they think the price of beans will go up and they intend to sell this contract when it does.
For financial investors, the value of a commodity is based on its market price. This market price, in turn, is determined by a wide variety of factors. If you invest in agricultural commodities, for example, the weather and growing season can determine current prices. A bumper crop will drive prices down, while huge storms can wipe out crops and drive scarcity, pushing prices up. Prices will depend on the use of a commodity, with demand pushing prices up as customers want more of a given product, as well as technology, politics, production bottlenecks and any other number of issues.
But, put simply, the more people want something and the less of it there is, the more investors can expect those prices to rise.
Precious metals of all classes are commodities as well, and gold is a raw material. However, it occupies a unique place among commodities. People invest in gold, well, mostly because it’s gold.
Gold is almost entirely associated with the history of money. For thousands of years, nations around the world used gold and silver as the basis for their coinage and monetary systems. Gold has always been particularly popular due to its specific chemical nature. This metal does not tarnish or wear out the way that most metals, such as silver, do; a gold brick from 1,000 years ago might be dusty, but it will be just as luminous as the day it was minted. It is soft enough to shape relatively easily, even with ancient methods. It is common enough to use in money, but rare enough to have value.
Perhaps most importantly of all, it has almost no other practical uses. The same malleability and rarity that makes gold good for coins also makes it almost useless for any form of metallurgy or construction. You can’t build with it or use it for a weapon or armor, which means that an active economy won’t consume its stock of gold over time. This makes it a relatively stable store of value.
Today, no modern economy uses gold as the basis for its monetary system. This practice became obsolete during the industrial revolution with the modern experience of economic growth. Miners can only pull gold out of the ground so quickly. In a medieval economy this was a largely stable system, since economies grew slowly by modern standards.
Once economies could count on significant annual growth, though, a nation’s productive capacity quickly began to outstrip its supply of precious metals, and therefore its money supply. (Basically, if your GDP grows by 2%, you need miners to literally dig 2% more gold out of the ground every year to keep prices steady.) This was a recipe for long-term deflation, coupled with bouts of inflation any time a gold rush struck. That in turn led to financial instability and recession, which was why most nations informally obsolesced their gold standards in the 19th century and formally did so in the 20th.
Today, gold as an asset derives most of its value from this historic tie to money. It has some limited properties as a semiconductor, as well as uncommon uses in pharmaceuticals, but overall a modern economy consumes very little gold for production and manufacture. Jewelry is the most common use, but this is ultimately a form of wearable storage. You can melt down a ring and return it to the market at little cost and with no change to the underlying metal.
As a result, gold’s main use is still as a store of value. People hold it not for its inherent utility but for what someone else will give them in exchange for that gold at a later date. Like any other investment asset, if the price of gold increases over time it is a good investment. If prices decrease over time, it is a bad one.
How Does Gold Perform as an Investment?
The problem with gold is that its price changes unpredictably. It has more volatility than the market at large, with fewer predictors, and is much more likely to enter periods of decline. Where the stock market may briefly decline during a recession, it will then resume growth based on overall economic growth. But gold can lose its value and often takes years to recover lost ground.
Like almost every other asset in the U.S. economy, gold has undergone a very rapid expansion over the past 20 years. The alone has climbed from around 1,000 points in the early 2000s to highs over 4,100 in 2023.
Gold prices have experienced a similarly rapid expansion. For most of the late 20th century, it was valued at around $400 per ounce and fluctuated within a range of about $100. Then, starting in the early 21st century, the price of gold shot upward. For instance, as of February 2023, it was $1,840 per ounce, according to Monex.com.
This would be a strong argument in favor of gold as an investment, except that the same rapid expansion has happened across stocks, bonds, real estate and most other major assets. The economy has simply grown quickly and, with it, the investors’ ability to place their money in assets. The Dow JonesIndustrial Average has nearly quadrupled in value from what it was worth in the late 90s, and real estate prices have doubled in the last 10 years alone. Gold has increased in value, but not at a more significant or rapid rate than any other major investment asset.
At the same time, gold’s price is highly volatile. While over a period of decades it has generally grown along with the economy, at any given moment it has experienced rapid price swings. Between 2011 and 2014, for example, the price of gold moved from around $1,400 per ounce to nearly $1,900 per ounce, then down to around $1,200 per ounce. In 2016 prices surged from below $1,100 per ounce to nearly $1,400 per ounce and then back down to nearly $1,100, all over the course of one year.
Between 2020 and 2023, the price of gold moved freely between $1,700 and $2,000. This is a 15% margin that has shown no stable direction of growth, but fluctuates seemingly at random.
Much of this unpredictability is driven by the fact that gold is a commodity without utility. Any other commodity can be priced, if nothing else, based on demand in the marketplace. If you are sitting on barrels of coffee beans, you can predict some price stability based on how much people want coffee. This is only one element in a complicated pricing system, but it provides a baseline for trade. No matter what else happens, Starbucks is going to need a minimum amount of beans to meet demand. Even other precious metals, like silver, platinum and palladium, have industrial uses that affect their prices.
Not so with gold, where the price of this asset is almost entirely determined by what other investors choose to pay for it.
The only significant predictor to the price of gold as an asset is that it tends to move counter-cyclically to the stock market. People usually invest in gold when times are bad, and liquidate gold when times are good. Prices per ounce climbed while the market fell in 2007, and generally did quite well in the middle of 2020. For many investors, this is an asset of last resort.
As a retirement asset, then, this gives gold a very marginal utility in your portfolio. Holding some limited amounts of gold can be useful as a counterweight. It will give you a potentially valuable asset during market downturns. However, gold should not make up a significant portion of your holdings. It is an unpredictable investment, with no ties to fundamental value that can use to make wise decisions. While it has grown in value over the years, you would have seen equivalent or better growth with a simple S&P 500 or Dow Jones Industrial Average, without the rapid price swings or potential for significant decline. And while we can recommend some holdings of gold for their counter-cyclical properties, more stable assets such as bonds can provide the same value – without the volatility.
All in all, gold is a metal with a fascinating history and a beautiful shine, but not much place in your portfolio.
Bottom Line
Gold is generally not a good investment, especially not for a retirement portfolio. While it is somewhat useful as a counter-cyclical asset, and it can be used as a store of value, it is volatile and periodically experiences large price drops. Investors saving for retirement should generally steer clear.
Tips for Investing
- A financial advisor can help you plan your investments for the future.Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Counter-cyclical assets are an incredibly important part of any portfolio. If you have everything invested in just one asset class, you set yourself up for poor market downturns. When assessing your portfolio, it’s important to understand the types of risk that you will face.
Photo credit: ©iStock/Dogan Kutukcu, ©iStock/Yahoo Finance, ©iStock/Dogan Kutukcu
Eric Reed Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
FAQs
Like any other investment asset, if the price of gold increases over time it is a good investment. If prices decrease over time, it is a bad one.
Does Dave Ramsey invest in gold? ›
I'd stop investing in gold and silver completely. I don't put money in precious metals at all, because they have a lousy long-term track record.
Is gold a good 401k investment? ›
In conclusion, investing in gold through a 401k to Gold IRA rollover can offer a range of benefits for retirement investors. From diversification and inflation hedging to portfolio protection and potential for growth, gold can be a valuable addition to any retirement portfolio.
How much of my retirement should be in gold? ›
Depending on your financial situation, most experts recommend you invest no more than 5% to 10% of your retirement funds in precious metals. The experts cite this low figure for a number of reasons.
Should I roll over my 401k to gold? ›
If you're looking for a secure way to save for retirement, converting 401k to gold IRA is an excellent option. A 401k to gold IRA rollover can help you diversify your retirement portfolio, protect your savings from market volatility, and provide you with greater access to gold products.
What does Warren Buffett say about buying gold? ›
“Gold is a way of going long on fear” Buffett has also spoken fairly extensively about his belief that people who buy gold are essentially betting on fear.
What does Warren Buffett think about investing in gold? ›
Investopedia contributors come from a range of backgrounds, and over 24 years there have been thousands of expert writers and editors who have contributed. Warren Buffett does not invest in gold. He has invested almost $1 billion in silver, so the reason for his aversion is not simply a dislike for precious metals.
Is there a downside to investing in gold? ›
Cons of investing in gold
While gold can help add balance and security for some investors, there are also risks to watch out for. Potential performance lag over time: Gold might outpace other assets during specific periods, while not holding up as well to long-term price appreciation.
Is there a better investment than gold? ›
If you want an investment that provides an income stream, stocks are likely the better choice. Note: You might be able to earn dividends from gold stocks or gold ETFs, but these are riskier than investing in physical gold like bars and coins.
Should I invest my IRA in gold? ›
The bottom line. Gold IRAs provide an inflation hedge, portfolio diversification and tax benefits. But, as with any financial product, they also have drawbacks, including contribution limits and low returns compared to other investments. Consult a financial advisor for advice on the best option for your situation.
If you manage to stay healthy and never need long-term care then $600,000 could be enough to sustain you in retirement. On the other hand, if you need long-term care in a nursing facility that could take a large bite out of your savings. Medicare doesn't cover extended nursing home care.
Is $750,000 enough to retire at 65? ›
How to Retire on $750,000. Can I retire on $750k plus Social Security? Yes, you can! The average monthly Social Security Income check-in 2021 is $1,543 per person.
What is the retirement 95% rule? ›
The Rule of 95 is an alternative full benefit retirement eligibility date to allow members to retire earlier than their schedule-based eligibility date. Under the Rule of 95, members can retire when their age plus their years of service equal 95 provided that they are at least 62 years old.
Is buying gold a good retirement plan? ›
Gold is generally not a good investment, especially not for a retirement portfolio. While it is somewhat useful as a counter-cyclical asset, and it can be used as a store of value, it is volatile and periodically experiences large price drops. Investors saving for retirement should generally steer clear.
Should you hold gold in Roth IRA? ›
There are lots of benefits to opening a Roth gold IRA. Not only can it allow you to avoid costly taxes in retirement, but it can also help you build wealth in the long run. Roth gold IRAs are also a way to diversify your portfolio and mitigate risk in an economic downturn.
What is the golden rule 401k? ›
One of the golden rules of retirement savings is to always try to prioritize taking the full amount of your employer match. For example, if your employer matches dollar for dollar your first 4% of 401(k) contributions, you should strive to put at least 4% into your 401(k).
Why are billionaires buying gold? ›
One of the primary reasons billionaires invest in gold is because it serves as a safe haven and store-of-value asset. During times of economic instability or market volatility, gold tends to hold its value or even appreciate, providing a level of protection for investors.
Has anyone gotten rich from investing in gold? ›
The answer is yes, absolutely! Gold can play a vital role in a robust, high-performing portfolio. It has helped millions of investors hedge against inflation, protect against economic downturns, and achieve superior returns. However, these results are not guaranteed.
What does Goldman Sachs say about gold? ›
Global investment firm Goldman Sachs forecasts more strength for gold as well as broader commodities once the Fed's hawkishness starts to dissipate. That, in effect, should bring the U.S. dollar down and subsequently, gold prices higher.
Does investing in gold beat inflation? ›
Gold is considered a hedge against inflation, hence during the higher inflationary scenario, gold tends to perform well. Gold over the past 10 years has given more than 60 percent absolute return in rupee terms, and in terms of CAGR as well, 3, 5, and 15 years of horizon prove to be a good hedge against inflation.
Some traditionally safe assets include precious metals like gold, silver, or platinum, or artwork. These are assets that will always retain their value, while they are also relatively easy to move around. However, during a crisis they have some significant disadvantages: They are easy to steal.
What does gold do in a stock market crash? ›
Gold holds its value when the dollar declines. As a safe haven against economic uncertainty. To hedge against stock market crashes. A study done by researchers at Trinity College shows that gold prices typically rise 15 days after a crash.
Is it good to invest in gold in 2023? ›
Some experts say today's high gold prices will continue rising as inflation persists and the economy remains uncertain. For investors looking to take advantage of the ability to diversify with an asset like gold (which may perform well while others in their portfolio fall) now could be a good time.
How much gold should I own? ›
In general, though, financial experts often recommend putting between 5 and 20% of your portfolio into gold or other precious metals, though some suggest an even greater allocation.
Does gold ever depreciate in value? ›
Gold won't depreciate like a currency, so investing in gold will always lead to retention or an increase in value. Unlike bank accounts where money can be rendered worthless, gold can be a savvy backup.
What asset is better than gold? ›
This is in part because silver deposits are nearly 20 times as common as gold. This leads to two outcomes for investors. First, it's much easier to invest in silver than gold. You can buy more of it for less money, meaning that less liquid investors can get into silver more easily.
Will gold go up in the next 5 years? ›
Fitch Solutions' gold price predictions for next 5 years predicted that the gold bullion would fall beyond 2023 as the global economy would recover and the Russia-Ukraine war would resolve, while algorithm-based price forecasting service WalletInvestor was bullish in their predictions, seeing the metal trade at $2,026 ...
Should I invest in gold or silver right now? ›
Silver could be a good option if you're considering investing a small amount of money, as it has more upside potential due to its industrial uses. On the other hand, if you plan to invest a larger sum, gold might be a better choice due to its scarcity and potential for higher gains.
Is a gold IRA the best investment for a senior citizen? ›
Is a gold IRA for seniors worth it? If you're looking to invest your funds in a safe, low-risk way, gold IRAs can be a great way to do it. Not only can they protect your retirement savings from market swings seen with stocks and other common investments, but they can offer the chance at a slow and steady growth, too.
What is the downside of a gold IRA? ›
Gold IRAs offer a hedge against inflation, diversification of portfolio, and tax advantages. However, like any financial instrument, they also have their disadvantages, including contribution limitations and relatively lower returns compared to other investments.
A: The answer depends on your individual investment goals and risk tolerance. A Gold IRA may be a better option for those seeking a long-term, hands-off investment with potential tax benefits. Physical gold may be a better option for those seeking the flexibility and portability of holding tangible assets.
Can you retire $1.5 million comfortably? ›
The 4% rule suggests that a $1.5 million portfolio will provide for at least 30 years approximately $60,000 a year before taxes for you to live on in retirement. If you take more than this from your nest egg, it may run short; if you take less or your investments earn more, it may provide somewhat more income.
How many people have $1000000 in savings? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings.
Can I retire at 60 with $2 million dollars? ›
Yes, for some people, $2 million should be more than enough to retire. For others, $2 million may not even scratch the surface. The answer depends on your personal situation and there are lot of challenges you'll face. As of 2023, it seems the number of obstacles to a successful retirement continues to grow.
Can I retire at 66 with $5 million dollars? ›
Based on the median costs of living in most parts of America, $5 million is more than enough for a very comfortable retirement. Based on average market returns, $5 million can support many households indefinitely.
Can I retire at 65 with $5 million dollars? ›
While there are a few questions you'll need to answer before you can know definitively, the quick answer is that you can certainly retire on $5 million at age 65. Though you may have to make some adjustments, depending on your lifestyle.
How much money do you need to retire with $100000 a year income? ›
This means that if you make $100,000 shortly before retirement, you can start to plan using the ballpark expectation that you'll need about $75,000 a year to live on in retirement. You'll likely need less income in retirement than during your working years because: Most people spend less in retirement.
What is the 80% retirement income rule? ›
A classic retirement preparation rule states that you should retire on 80% of the income you earned in your last year of work.
Can I retire at 55 with $1 million? ›
In fact, a recent survey found that investors believe they'll need at least $3 million to retire comfortably. But retiring with $1 million is still possible, even as early as age 55, if you're smart about it. It will require some careful planning since you'll have to wait 10 years for Medicare, but it can be done.
Can I retire at 55 with $2 million? ›
Yes, $2 million should be enough to retire. Annuities provide an income option to pay a guaranteed monthly amount for two lives.
Throughout history, gold has been seen as a special and valuable commodity. Today, owning gold can act as a hedge against inflation and deflation alike, as well as a good portfolio diversifier. As a global store of value, gold can also provide financial cover during geopolitical and macroeconomic uncertainty.
At what point is a Roth IRA not worth it? ›
Key Takeaways
A Roth IRA or 401(k) makes the most sense if you're confident of having a higher income in retirement than you do now. If you expect your income (and tax rate) to be higher at present and lower in retirement, a traditional IRA or 401(k) is likely the better bet.
What is the best way to buy gold? ›
You can purchase gold bullion in a number of ways: through an online dealer such as APMEX or JM Bullion, or even a local dealer or collector. A pawn shop may also sell gold. Note gold's spot price – the price per ounce right now in the market – as you're buying, so that you can make a fair deal.
How is gold taxed? ›
And since gold is an investment asset, when you sell your gold and make a profit it is taxed as capital gains. Though, depending on how you held your gold, you will either have to pay taxes at the ordinary capital gains rate or at a general rate of 28%.
Can I retire with $300000 in my 401k? ›
In most cases $300,000 is simply not enough money on which to retire early. If you retire at age 60, you will have to live on your $15,000 drawdown and nothing more. This is close to the $12,760 poverty line for an individual and translates into a monthly income of about $1,250 per month.
How long will $300,000 last in 401k? ›
That's a hefty 8% withdrawal rate, double the 4% rule of thumb that guides many retirees. At this rate, with no extra investment or reduction in expenses, their retirement savings will run out at around 13 years.
Do millionaires use 401k? ›
The number of 401(k) millionaires in Fidelity-managed plans is relatively small, just shy of 1.4 percent out of 21.5 million accounts. That segment peaked in 2021, at 442,000, with a median balance of $1.3 million, according to Mike Shamrell, vice president for workplace thought leadership for Fidelity.
What funds does Dave Ramsey invest in? ›
Dave divides his mutual fund investments equally between four types of funds: Growth and income, growth, aggressive growth, and international.
Where does Dave Ramsey invest his money? ›
Dave advises living debt-free and investing for the long term to achieve financial success. He built his fortune through books, radio shows, financial seminars, speaking engagements, and by founding Ramsey Solutions. He invests in real estate and startups, reinforcing his wealth-building strategies.
Do financial advisors recommend gold? ›
Your financial advisor might recommend gold, but only in the form of gold ETFs, which are a type of stock that goes up or down in value depending on the spot price of gold as a commodity.
"For most people, the best way to access gold is the easiest way — via an ETF that's backed by a physical depository," says Noah Damsky, CFA and principal of Marina Wealth Advisors. "It's easy, efficient and transacts at low costs." Examples of popular gold ETFs include: SPDR Gold Shares (GLD)
Why does Dave Ramsey say not to invest in ETFs? ›
ETFs tend to have the lowest fees because they're usually passively managed index funds. Most mutual funds, by contrast, are actively managed, and human management isn't cheap. Ramsey says he doesn't like ETFs because he's a buy-and-hold guy. Unlike mutual funds, ETFs trade on stock exchanges.
What is the 7 year rule for investing? ›
Assuming long-term market returns stay more or less the same, the Rule of 72 tells us that you should be able to double your money every 7.2 years. So, after 7.2 years have passed, you'll have $200,000; after 14.4 years, $400,000; after 21.6 years, $800,000; and after 28.8 years, $1.6 million.
What is the biggest wealth building tool Dave Ramsey? ›
Get Out (and Stay Out) of Debt
Let's get one thing straight: The only “good debt” is paid-off debt. Your most powerful wealth-building tool is your income. And when you spend your whole life sending loan payments to banks and credit card companies, you end up with less money to save and invest for your future.
What percentage of income should go to savings Dave Ramsey? ›
The 50/30/20 rule is a way of budgeting that divides up your money into three categories: needs (50%), wants (30%) and savings (20%).
How much does Dave Ramsey make annually? ›
Dave Ramsey earns $30 million annually through his books and investments. Dave Ramsey is an American radio personality who offers financial advice.
What is the downside of buying gold? ›
Cons of investing in gold
While gold can help add balance and security for some investors, there are also risks to watch out for. Potential performance lag over time: Gold might outpace other assets during specific periods, while not holding up as well to long-term price appreciation.
Is it smart to put all your money in gold? ›
Gold is considered a hedge against inflation
Gold and other precious metals have long been considered a smart way to fight inflation. That's because it tends to hold its value and preserve your purchasing power over the long haul, despite fluctuations in the dollar.
Is it better to buy gold coins or bars? ›
Gold coins are known to have more sentimental value than gold bars both historically and culturally. Simply put, gold coins can be more ideal for you than gold bars if you want to invest in something with a more historical and cultural value. Again, gold coins have more collectible value than gold bars.
Is gold a good investment in 2023? ›
Some experts say today's high gold prices will continue rising as inflation persists and the economy remains uncertain. For investors looking to take advantage of the ability to diversify with an asset like gold (which may perform well while others in their portfolio fall) now could be a good time.
