When you turn on the TV, you hear about inflation, a possible recession, volatility in the stock market, and turmoil in the world. Traditional investments such as stocks and bonds have been volatile because of this uncertainty. Many investors are now turning to gold and silver to park their retirement funds because precious metals have been safe haven investments for centuries.
What should you invest in – gold or silver? While most people discuss gold and silver as though they are similar, these two assets are very different. Which one is better comes down to your investment goals and how they fit in with the rest of your investments.
Pros Of Investing In Gold
- Gold is not correlated to other assets such as stocks and bonds. In fact, gold has an inverse relationship with most assets.
- Gold is a good inflation hedge
- Unlike paper currencies, gold has extrinsic value. You can sell it easily either through reputable deals or even pawn shops.
Cons of Investing In Gold
- Gold supply is limited, so gold is expensive
- Returns from investing in gold have trailed the stock market returns
- Because of its value, gold is expensive to store. Cost of storing gold in a storage facility can be north of 0.5% of the value of gold.
Pros Of Investing In Silver
- Silver is less expensive than gold because the supply of silver is more than gold
- Silver is used in many industries and has more commercial value than gold
Cons of Investing In Silver
- Historically, silver has been more volatile than gold
- Because of its commercial use, there is less demand for gold during recessions
- Because of its low value, you need to buy a lot of silver to invest a substantial sum. This means you need a lot of storage.
Precious Metals Don't Have Cash Flows
Whether you invest in gold or silver, remember that these precious metals don’t produce any cash flow.
On the one hand, lack of cash flow makes these investments tax efficient. But if you need distributions to live on, you may want to consider investing a portion of your money in ETFs or dividend-paying stocks.
Risks of Investing In Gold And Silver
As with any investment, gold and silver are subject to supply and demand. So gold and silver prices fluctuate over time. Just like stocks, it’s possible to lose money on gold and silver.
But as discussed earlier, gold and silver investments are not correlated to traditional equity investments. They bring diversification to your portfolio.
Which Is Better - Gold Or Silver
Gold is a safe investment asset and is often considered as an investment hedge. The price of silver tied to economic activity. But both gold and silver can function as safe haven assets. Gold has a longer track record than silver. But both gold and silver will work for investors as a tool to diversify their investments.
Whether an investor chooses gold or silver comes down to your investing preferences.
But as discussed earlier, gold and silver investments are not correlated to traditional equity investments. They bring diversification to your portfolio and limit the overall volatility of your portfolio.