Gold vs. Stock Market: Comparing These Investment Options

Author: Focus on the User | 11 min read
Gold versus stock market when investing

Comparing gold versus the stock market as an investment option has benefits and drawbacks. Both are good choices depending on what you are looking for in an investment.

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It's easy to get caught up in the hype with stocks. After all, if you draw a long enough timeline, you would see that, on average, American stocks at least perform at a rate of 7.96% or more appreciation per year. Factoring in dividends, that's nothing to rule out.

Is Gold a Better Investment Than Stocks?

Investing in gold or stocks

Why would you invest in precious metals when stocks are doing so well? When you look at that 30-year or 40-year timeline, the problem is that you'll notice several deeps. We're not just talking about the 2008 financial crisis, the 2001 Dot-Com Debacle, or even the COVID-19 crash. We're also talking about the 1997 Asian financial crash and the 1987 Dow Jones crash. There are many times when the stock market crashed.

chart of the price of gold and stocks

Solid appreciations tend to focus primarily on blue chip stocks. These are companies that are solid and are very healthy financially. They are often market leaders and have a tremendous market share.

This timeline doesn't apply to just your rank and file stocks. In that particular situation, it's pretty much hit or miss. With that said, you should still diversify your portfolio into gold. It's not a question of gold versus stocks because you're trying to pick gold or stocks; this is not an "either-or" situation.

Instead, this is a diversification play for your investments. Gold should play a role in your investment portfolio. Gold can put you in a position to recoup whatever losses your stock holdings may suffer when the market eventually crashes. Notice "when" instead of "if." The reality is, again, going back to that 30 or 40-year timeline, there are periodic crashes in the stock market.

What separates winners from losers is that winners hang on when there is a stock market crash. You can afford to wait out the market when you diversify a small portion of your investment portfolio in gold. Those who get into the market but borrow through marginal accounts or other forms of lending position themselves to panic.

When the market starts to crash, they head for the exits and lock in their losses. A lot of these people go bankrupt. Positioning yourself in gold and stocks enables your portfolio to recover quickly from stock market crashes.

Gold Gains Value During a Stock Market Crash

buying stocks or buying gold for portfolio

Historically, gold will maintain its price and not lose value assuming a stock market crash six months from now.

When the stock market crashes, gold increases in value. Commodities can also benefit during a stock crash. Commodities such as crude oil, processed oil, gasoline, tin, copper or coffee can do well during a stock crash.

There are some anomalies from time to time, but as a rule, gold prices tend to increase when the market crashes. Use this to your advantage. Suppose you park enough of your portfolio into gold. In that case, this predictable movement will protect the rest of your investment portfolio from complete devaluation.

It's crucial to scale back on risky equity exposure before a market crash. Of course, as part of the standard financial planning advice, you should diversify even within your diversified portfolios.

Next read: Where Will the Price of Gold Go This Year?

Profiting From a Stock Market Crash

At this point, let's assume that the market has crashed. Let's take that gold did its job, and you can retain the value of your portfolio.

It's time to make a move when the price of stocks continues to hemorrhage. When this happens, you can liquidate some of your gold holdings to buy a blue chip American stock at bargain rates.

You must remember that when determining the proper ratio in gold versus stocks, you are looking at a timeline that will help you protect your investments. Have your gold holdings position you to take advantage of temporary market crashes.

Stock Market Recovery Strategy

When talking about a depressed market, we're talking about a situation where the Dow Jones continues to hemorrhage and trend downwards. You can start liquidating some of the depressed stock holdings you bought at low market prices when it breaks that pattern. You can do this on a graduated basis to replenish your gold holdings.

When deciding between gold versus stocks, you are looking for a proper ratio that positions you to preserve the value of your overall investment portfolio. It should also position you to take advantage of a depressed stock market.

Gold Resources

Bullion guide for readers.

DO NOT Invest in Precious Metals.. Until You Read This Guide

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Disclaimer: Content on this website is not intended to be used as financial advice. It is not to be used as a recommendation to buy, sell, or trade an asset that requires a licensed broker. Consult a financial advisor.

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