People, as you already know all too well, primarily generate income via compensation earned from labor. Although many people here in the United States live paycheck-to-paycheck, leaving them with little to no disposable income, a fair portion of Americans purchase things with leftover earnings – called disposable income in the world of personal finance – known as investments.
According to arguably the world’s leading financial dictionary, Investopedia, an investment is something that is purchased or acquired with the objective to make money with it – either income, such as in the form of dividends, or asset appreciation, in which the value of that investment increases but no cash is realized until it is sold.
Now that you know what an investment is, let’s attempt to answer the question you came to learn the answer of: Is gold a safe investment?
What Is Gold, Anyway?
Precious metals are metallic elements found throughout nature that are worth a reasonably high monetary or trade value. The world’s most popular precious metal is gold, which has been used by human societies for many thousands of years primarily as jewelry and as a material to create coins out of.
Current uses of gold include manufacturing electrical connections that do not corrode, meaning they perform better and last longer than their non-gold counterparts. Smartphones, laptops, and tablets all contain gold. The element is also used in various foods, the vast majority – if not the entirety – of
Why Is Gold Valuable?
As mentioned above, gold does have important uses in the real world. However, the value of gold in such a capacity is far, far lower than its value as jewelry.
Many people believe that if modern, printed money fails due to a catastrophe or an immediate, major change in what humans value, people will use gold, silver, and other precious metals as currency.
Ultimately, gold is valuable because society collectively believes gold is valuable. If we didn’t think gold was valuable, it wouldn’t cost very much. The price of gold is going to remain higher than the price of any other precious metal for the foreseeable future because it has been firmly ingrained as being important in human culture for millennia, as well as the fact that humanity simply isn’t going to write gold off as a store of value anytime soon.
Is Gold A Safe Investment?
Gold is typically purchased as a tool to hedge against risk. Most well-rounded portfolios and investment pools hold a few percentage points’ worth of gold.
It’s safe to say that gold is a relatively safe investment. Prospective investors should not, however, purchase gold with the intention of generating a profit. As such, since gold isn’t as likely to increase in value as stocks are, for example, it’s not a good investment, in terms of the definition at the beginning of this article.
Is gold something you should exchange some assets in your portfolio for? Yes – it’s a good idea to have between two and five percent of the dollar value of your investment portfolio in gold.