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- Gold offers unmatched liquidity and is considered as a store of value.
- Stock investments offer diversification and the opportunity to amass wealth.
Investing in Gold is a different ball game as compared to investing in stocks. Traditionally, investing in Gold is considered as a store of value, which can be liquidated easily at the time of emergency. Meanwhile, the investment in the precious metal shall appreciate during the holding period. Being a store of value, Gold investments are an ideal choice for conservative investors as it provides them not only with great returns but risk hedge capabilities and inflation protection.
In some parts of the world, Gold also has a sentimental quotient attached to it. For instance, Gold ornaments inherited by generations are passed on or gifted to the new generations. However, the trend is now changing.
At present, there are a plethora of avenues through which one can take exposure to Gold without buying it. Investors can look forward to Gold bonds, digital Gold, Gold ETFs, or Gold stocks for an indirect exposure without Gold in physical form.
Smart investors use Gold investments to hedge against downside risks in the market. They allocate some part of the portfolio in Gold related investments to balance the overall risk. Historically, Gold tends to appreciate during economic turmoil — war, plague, political instability, and social unrest. Last year, during the peak of the unprecedented crisis, Gold touched an all-time high of $2,000 per ounce. Gold investments usually provide investors with emotional stability and comfort during the crisis.
Several new investors often face the dilemma of investing in Gold versus stocks. It is important to understand that this is not an either-or situation. To create a robust portfolio that can weather out market volatilities in the long run, an investor must take exposure to maximum asset classes in line with his goal and risk appetite.
The best way to decide between the two is to define your goal, time horizon, risk appetite and see which asset class suits you.
Let us look at the merits and demerits of investing in Gold versus Stocks.
Investing in Gold
The precious metal has its own merits. The precious metal is widely used in industrial applications, electronic conductivity. Also, due to its malleable nature, the precious metal could be shaped into fine pieces of art, jewellery and is often rewarded for achievement or excellence. Hence, the precious metal is always in demand.
As an investment, Gold can be bought in physical forms such as coins, bars, or jewellery. Also, Gold is among the few tangible assets which one can hold. The main USP of investing in Gold is liquidity. One can simply walk-in to any jewelry shop can convert into cash. Also, digital Gold can be redeemed in a much shorter time in contrast to other asset classes. Gold investments could be pledged easily for short term loans and advances.
In addition, Gold as an investment can be accessed by people who lack financial acumen as the precious metal does not require any technical research.
Investing in Gold can burden you with storage costs and the risk of theft. However, buying digital Gold can help you manage these costs and risks.
The precious metal does not reward you with cash flow such as dividends. Also, it does not have an economic growth quotient attached to it. It is just a piece of inert metal that can be traded like any other good and does not innovate. Gold as an asset class does not compound.
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Investing in Stocks
Stocks reward you with cash flows such as dividend income. Stocks are equipped with the eighth wonder of the world – the power of compounding. With dividends reinvested along with the power of compounding, investment in stocks can lead to enormous amount of wealth creation in the long term.
Also, investing in stocks means owning a share of business that can grow by leaps and bounds by consistent innovation and thereby leading to value creation and economic growth over time. Investing in stocks also means investing in domestic/global economy. The investment tends to grow with the economy over the years.
Holding stocks does not burden you with storage costs and theft risks. Stock investments are liquid in nature. However, they are not as liquid as the precious metal. The prime USP of stock investing is diversification. Value investor Warren Buffet said that you should never put all eggs in a single bucket. Stocks offer you diversification like no other asset class. One could invest in a portfolio of sector specific stocks, penny stocks, dividend stocks, blue-chip stocks, Gold stocks, Lithium stocks and many more.
Stocks are vulnerable to market risks and hence are more volatile. However, equity investments held for longer time horizons could help you overcome this demerit as the power of compounding shall lead you to handsome returns.