You don’t need a degree in economics to know that now is a good time to invest in gold. Investors face a big decision once they decide to put their money in precious metals: should you buy gold bullion or invest in mining companies? The answer depends on your expectations and outlook of the future.
Buy Bullion: It’s Always a Solid Investment
Gold bullion has two big advantages that make it a solid investment:
- You maintain physical ownership of the bullion
- The value has remained high throughout history
If you want a safe investment, authorities like US Money Reserve will tell you that it’s hard to beat gold. Last year, the value jumped 12 percent from $1,531 to $1,721.10. You won’t find many stocks that offer that kind of return.
Gold’s value also has a historical baseline. The price fluctuates from hour to hour, just like the value of stocks, but it will never fall to zero. A historical analysis shows that gold is a great long-investment regardless of how short-term fluctuations affect today’s price.
Buy Stocks: They’re Currently Undervalued
Just about every investor will tell you that you have to take risks to make more money. The higher the risk, the higher the reward. Of course, higher risks could also mean that you lose your entire investment. Companies do go out of business, after all.
Now, however, looks like a great time to buy stock in companies that mine gold. Last year, the average stock value fell 6.6 percent even though the companies were making money. How does that make any sense?
It’s all about fear. People don’t have much faith in the economy right now. That causes stock prices to fall, even when companies make record profits. Eventually, though, stock prices will go up. Buying now means that you can enjoy a profit when that happens.
Buy Bullion: Mining Companies Face Too Many Obstacles
Some of the risks that mining companies face today could limit their profit potentials in upcoming years. Mining companies have to deal with:
- Stricter environmental regulations
- Rising fuel costs
- Workers compensation insurance
- Higher taxes
- Managerial mistakes
You avoid these problems when you buy bullion.
Buy Stocks: Benefit From Dividends
Again, taking risks can lead to higher profits. When you buy stocks, you can benefit from dividends. As companies earn money and their stock prices go up, they can either give you a cash payment or compensate you with additional stocks.
This can have an exponential effect on how your money grows. Let’s say you have one stock. When that stock splits the first time, you have two. When it splits the second time, you have four. On the third time, you have eight. And so on.
If you stick with a company for decades, this can generate a lot of wealth. Unfortunately, your bullion won’t multiply in the safe.
Now that you know a bit more about investing in gold bullion and mining stocks, which option will you choose? There isn’t a “right” decision. But it’s good to share information that helps other people make smart choices.
DJ Miller is freelance writer out of Tampa, FL. He has the mind of an economist and the heart of a journalist. His topics range from the US Money Reserve to personal finance advice. Feel free to follow him on Twitter @MillerHeWrote.
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Category: Money Basics