Is All That Glitters Gold?

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My clients frequently ask me if they should invest in gold. Since the financial crisis in 2008, advertisements for gold have blanketed the television and radio airwaves. Many major radio and television personalities have become gold advocates (of course they're being well-paid to do so). Gold is often pitched as an inflation hedge and a defensive move against possible economic downturns. In my experience, gold is typically not a desirable investment. This is illustrated in professor Jeremy Siegel's book Stocks for the Long Run (McGraw-Hill, $40). According to Professor Siegel, between 1802 and 2012 a dollar invested in gold would have grown to $4.52 (adjusted for inflation). During that same time frame, a dollar invested in Treasury bills would have grown to $281; a dollar invested in bonds would have grown to $1,788; and a dollar invested in stocks1 would have grown to $704,997. Gold can be very volatile and it is illiquid. After reading all of this, if your mind is still set on investing in gold I urge you to limit it to a small portion of your portfolio. Also, instead of investing in actual gold, you might want to consider investing in gold-mining companies or mutual funds focused on gold. Clearly, all that glitters is not gold.

1 The index used is the DJIA. 

Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.  Past performance is not an indication or guarantee of future results.