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Stocks vs Gold – Where should I invest?

Published by Martin Karus in category Precious Metals on 02.03.2021
Gold price (XAU-EUR)
1 577,45 EUR/oz
  
+ 12,35 EUR
Silver price (XAG-EUR)
19,93 EUR/oz
  
+ 0,12 EUR

Where should I invest? How much should I invest? Why there? Why not there? All those questions are very common for investors. With every investment comes a lot of thinking, weighing pros and cons, risk-reward ratio, and much more. It is hard to make a good decision that makes you profit. You can never be 100% sure of investments. Investing is a game of diversification.

Stocks vs. gold

It is very easy to get caught up in the hype of stocks. If you draw a long enough timeline, you would see on average, American stocks perform at a rate of 11% or more per year. 11% gain per year. It is obvious one should invest in stocks right?
If we draw the timeline at 30 years, this is very impressive. Here is a calculation:
Let’s say we invest 1000 EUR and gain 11% every year.
*1st year we invest 1000 EUR and gain  + 11%. The first-year balance would be 1110 EUR
*2nd year we invest with already gotten interest so 1110 EUR + 11% = 1232.1
*3rd year we reinvest again so the calculation would be 1232.1 EUR + 11% = 1367
and if you do this calculation for 30 years, the portfolio gain would be over 2500%.

Seems like a no-brainer, right? The problem is, when you look at those 30-40 year timelines, there are several huge drops. There was the 2008 financial crisis, the 2001 dot-com crisis, the 1997 Asian financial crash, the 1987 Dow Jones crash. These are only a few that we think are worth mentioning. In this long timeline, there are many disruptions of the market.
The same thing is with gold. Everyone should diversify their portfolio. ´´Don’t put all your eggs in the same basket´´ like Warren Buffet likes to say. It is actually not the question of gold vs stock, either this or that. Instead, this is a diversification play.
When the market starts to crash, they head for the exits and they lock in their losses, a lot of these people take huge losses. By positioning yourself in gold to a significant extent, you enable your portfolio to recover quickly from stock market crashes.

9 times out of 10 gold moves in another direction

Usually, when the stock market crashes, gold spikes up and so do other commodities – crude oil, gasoline, copper, and even coffee. This is of course how the market has behaved historically. It is fair to say this has happened 9 times out of 10.
The price of gold tends to go up when the market crashes, so if you invest enough in gold when stock markets are up (like now at the end of November 2018) then you have a hedge against possible losses in your stock investments in the long run. It is important that you start calculating your risks and scale back before the market crash. When we look at DOW 30 and SP500 for example we see on the graphs that the market wants to go more bullish, but there is resistance because the second half of the market (bears) do not believe it can go any higher. Also, the Relative Strength Index indicator shows divergence which usually means a big price movement.

Gold as a perfect asset to own in the times of Crisis

PS! Financial analysts all over the world are saying that an economic crisis usually takes place every 8.5-11 years. Right now we are in the 11th year. Just something to keep in mind.
Gold is a perfect asset to have in times of crisis. Protecting your money is one thing, but you can also earn big bucks from the crash. From the money you made with gold, you can always invest back in stock when they are super low, so in the next cycle of economic boom, you are there. We believe everybody wants to be on the winning side so take your time, educate yourself and make the right investments!

In conclusion

The winners are those who diversify and are patient. Since gold and stocks are usually moving in opposite ways, winners are those who can wait out the stock crash or who move their money around at the right time, into the right asset groups. Investors who have gold for covering their losses usually end up on the winners´ side.
Diversify, diversify and diversify and invest in gold to secure your money.

Gold price (XAU-EUR)
1 577,45 EUR/oz
  
+ 12,35 EUR
Silver price (XAG-EUR)
19,93 EUR/oz
  
+ 0,12 EUR

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