Is gold investment a sound strategy to retain the value of your capital?

28 April 2023

Question by Chris

Is gold investment a sound strategy to retain the value of your capital?


Answered by Holly Mackay

Hi.

Gold really divides opinion. Some love it, others think it’s a bit mweh.

The main thing about gold is that you can bite it and stash it under the bed. It’s real. And it can exist without companies, banks or global superpowers. So when the world is going mad, people can flock to gold as a safe store of value. It’s like the opposite of cryptocurrency!

You can buy gold and hold it yourself. Or you can buy it from the Royal Mint’s digital vault and they keep it for you so you don’t have to worry about burglars, or digging up the garden! Or you can buy into the fortunes of gold via a fund – which can buy and own gold directly. Or make money from gold mining companies – a bit of an indirect way to access it. BlackRock’s Gold and General fund is a popular example.

I think gold has a place but I don’t get too excited about it. You could decide to allocate say 5% or 10% of your portfolio here – it will tend to hold its value when stock markets are going south. Or have a rubbish time when stocks markets are soaring. So it’s a good diversifier.

I think the basic answer for most people is to ask how miserable you feel about the world! If you think everything’s going south and it’s time to stockpile food and build a bunker, then you might want more in gold. I’m slightly joking, but there’s a serious point there. You could read up more on Money Week – they have lots of writers who like gold a lot. I’m a bit more lukewarm but I can see it has its part to play.

If your main focus is maintaining and preserving your wealth rather than growing it, then I think it is more interesting, yes, and warrants consideration of a larger allocation. It will protect you from inflation to a large degree, is easy to store and pass down to future generations, and is relatively stable. It is, by definition, a store of value.

I don’t think gold alone is the best approach to wealth preservation but I think it has an interesting and important role to play in how you manage your money, if your main goal is preservation rather than growth.

Holly

Answered by

Holly Mackay

Founder and CEO of Boring Money

I’ve worked in investment markets for over 20 years. I started out at Merrill Lynch Investment Management and worked at a few big names before setting up my first business in 2008.