Tuesday, November 23, 2010

Say No To Gold

Gold price is growing through the roof right now. People have already started to regret for not buying gold. Many believe gold is the safest investment with huge potentials. The increasing prices of gold does give an impression that it is a good investment.
But I would like to go over to point out why gold is a terrible investment. And if you are considering purchasing gold, just save your money. And if you have already bought, get rid of it as fast as you can. Gold is perfect as jewelry, of course  after diamond, but terrible as investment.
And why do I say that?
There are obvious reasons for it. I will quote Dave Ramsey, author of best selling book, The Total Money Makeover, who explained it very clearly on his radio show why gold is a terrible investment. There can't be any better explanation. He is right on point about it. I thank him for sharing with all of us.
My principle for investing in something is it needs to have a good long track record of a good steady rate of return without a ton of volatility. Gold as an investment, when you study its track record, sucks. It has made all of the returns it has made in the last seven and a half years. As soon as the economy stabilizes, the fear in the air will subside, and as soon as the fear subsides, gold is going to plummet. It's going to be at half of what it is right now in about 20 minutes. One hundred percent of the returns gold has generated in the past seven years are fear- based. It's people that are afraid the economy is going to collapse or they're speculating on people who are afraid the economy is going to collapse. That's what's driving gold's price up. It has nothing to do with the fact that gold is worth more.

Juxtapose that with something like stock in Home Depot or stock in Apple. It is worth more because the company has made more. There's an actual mathematical return and a reason for the stock to have gone up in value. That's what drove the stock. When stuff is driven to artificial lows or highs by fear or greed, that is called a bubble, and the bubble will always burst. You can't buy things based on fear or greed and call that an investment. At best, it's speculation; at worst, it's gambling.
As a matter of fact, I've become more and more sure every day that I'm not putting any money in gold. Now, had you put money in gold seven years ago, you would have made a fabulous rate of return to today. But had you put money in barrels of oil a few years ago, you would have made a fabulous return and then lost it all. If something's all in the news, you're too late to invest in it.
You need to do investing in things that are calm, steady and predictable. Gold is a precious metal; it has no intrinsic value. It shoots up based on fear or greed, and it will fall the same way. If you put money in it today, in five years, you will regret having done that.