(Newswire.net — February 17, 2017) — If you’re interested in investing, but you’ve never actually done so before, it’s important to understand the basics before you start risking your money. One of the great ways to start is to learn why someone would invest in gold instead of stocks, or vice versa. This one example illuminates some of the most important considerations facing new investors. We’ll cover a number of them below.
The Pros and Cons of Investing in Gold
Gold is the most famous and most-often traded precious metal. Gold has its advantages and disadvantages for investors, depending on the needs of the individual. Gold is different from stocks in that it is not an asset. An asset, by definition, is something that puts money in your pocket all the time, not just when you sell it. Examples of assets include businesses, real estate from which you are receiving rental income, or stocks that grow in value and pay off regular dividends.
Gold is a commodity. You can’t improve it. You can simply own it and hope that it retains or gains value. However, gold has certain advantages over stocks, because it doesn’t follow the patterns of business. Gold can’t go out of business. It won’t ever lose ALL of its value, or even most of it. Gold has inherent value because of its rarity and its usefulness in all kinds of mechanical operations.
People buy gold because they know it will hold significant value regardless of what the economy is doing. Often, gold does better when the economy is not doing well. A look at gold prices today will show you just how gold performs in a variety of market climates.
The Pros and Cons of Stock Investment
When you buy a stock, you are buying a little piece of a company. The growth and revenue of each share is in exact proportion to the growth and revenue of the entire company! Companies can be improved upon in a way that gold cannot. They can enter new markets, exploit market opportunities, and generally exhibit enormous growth in a way that a simple commodity like gold never could.
On the other hand, a stock can (and often does) lose most or all of its value. Companies go out of business every day, and if you are invested in them, that aspect of your portfolio goes out of business too. One way to do this is to invest in so many different stocks that when one fails, it’s not a big deal because all the other ones are doing well or at least OK. This is called diversification. It’s about not putting all your eggs in one basket.
In the end, your portfolio will likely need to include both gold and stocks in order to achieve the combination of growth and security that you need. The amount you invest in each is up to you and your needs. Given time, any strategy that intelligently uses both forms of investment will end up with great wealth.