The COVID-19 pandemic has changed the way we think about our finances, not least in the way we invest. Becoming a buy-to-let landlord or trading on the stock market will always be favourable to some, but tangible assets like gold offer an added level of reassurance during the economic and political uncertainty we’re all currently facing. To give you a helping hand, we’ve rounded up some of the biggest pros and cons of investing in gold as an expat…
Whilst stocks and bonds are nothing more than a piece of paper for investors, gold is a real, tangible asset that can be touched. The same is true of property, but you can take gold with you when you move around from country to country, and it’s much easier to dispose of gold than it is a property when you need to free up capital. Over the centuries, investors have escaped wars and set up new lives using their gold bars, and whilst it’s now much more likely that you’ll pay for your gold to be stored away safely, it’s an option when you own gold.
Whilst you can invest in the stock exchange from your smartphone or buy properties and hand over the responsibility to a management company, you’ll need to pay for your gold to be stored. Even those who invest in “paper gold” will have the cost of storage factored into their ongoing fees and charges. According to one source, storage fees for gold come in at around 0.65% + VAT per annum of the Insurance Value of your total metal holding, which could prove to be incredibly costly if you plan for your gold to be stored for many years.
Another drawback is that the majority of people don’t buy real gold. Instead, they’ll invest in funds that are backed by gold, but this offers the same level of investment as putting money into stocks and shares. Unless you’re buying the real thing, you won’t enjoy the full benefits.
Since the start of the COVID-19 pandemic, gold prices have surged as investors look for a safer way to park their money. Over the past several decades, gold has become the asset that investors turn to for safety during political and economic uncertainty, offering a level of diversification to an investor’s portfolio and allowing them to withstand market volatility. Whilst investment stocks have struggled in 2020 due to the pandemic, gold is less risky as it “stores” its value, and because of shorter supply, prices are now bolstering around the world.
If you were looking to make a quick buck from the COVID-19 pandemic and upcoming recession, you’d have had more luck investing in stocks from Amazon and Apple than you would in gold. Although gold does increase over time and hedges inflation, most of its value tends to come from recessions themselves, as demonstrated by price spikes in 2000 and 2008. In fact, prior to the COVID-19 pandemic, gold prices were falling. Investing now could mean that, when you come to ‘cash out’ in five years, your gold is worth less than you paid.
It’s also worth mentioning that, although gold is indeed a safe haven from an economic perspective, it means very little in the grand scheme of things. If the global economy crashed or failed, paper gold would be worthless, and physical gold would only hold so much value, with commodities like food and weapons proving to be more powerful and valuable instead.
Another reason why investors are flocking to gold during the pandemic is that central banks are being forced to print more money to stimulate economies. Over time, this will result in inflation. Gold, on the other hand, over long periods of time holds its value in real times, serving as a “refuge” against inflation. However, it’s important to note that the entry point to gold is particularly high ($1,500+) which can be prohibitive to some investors and expats.
Pandemic aside, gold has long been considered an inflation hedge, especially for those who diversify their investments across bonds, gold, cash, and stocks. Because these investments tend to move in opposite directions, investing in all four allows you to counteract potential negative impacts, reducing your risk and protecting you against any potential future inflation.
Finally, consider the fact that you only earn money when you sell your gold. Unlike stocks and shares, gold produces nothing when you own it - in fact, you’ll spend money paying for it to be stored. If you want to build an investment portfolio that generates returns, you’re better off investing in assets that produce passive income so that you can build your portfolio and increase earnings. If you buy properties, for instance, you’ll generate returns month-to-month by renting them, and you’ll earn a return when you sell your properties for more than they were bought for. Gold takes away that earning potential and means you’ll only benefit when it sells, and that’s if you manage to sell it for more than you bought it for in the first place!
The truth is that gold isn’t the right investment for everyone, but depending on your individual circumstances, it could be for you. As an expat, we recommend speaking to a regulated and independent financial adviser who can help build an investment plan that works for you. Be sure to check back to the Money Saving Expat blog soon for more expert investment tips.
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