Investing in gold is generally revered as a good investment, but there are some downsides you should be aware of before you get involved. Gold is recognized as a safe haven investment, has low long-term volatility and is easy to understand. However, there are potential transaction costs, storage problems and lack of liquidity. When you invest in gold, you'll need to have all the cash on hand to make a purchase.
You cannot use leverage or any type of financing for this type of investment or purchase. Investing in gold will not provide you with any kind of tax advantage. Conversely, if you invest in stocks for an extended period, you will only have to pay a long-term capital gains tax of 15 percent. One of the big risks of investing in gold is that it is subject to confiscation.
The government could enter and confiscate all the gold in a warehouse if it deems it necessary. In that case, there is nothing you can do about it and you will lose your investment. It takes considerable capital to be able to buy gold and finding the best and secure storage for your assets can be challenging. Its speculative nature of value may be precarious for conservative investors. Gold investments are not eligible for any kind of tax advantage and its liquidity problems can be solved by investing in gold ETFs, but that eliminates the benefit of owning physical gold.
Gold investors who want to turn their portfolios into a source of income will have to start selling their gold. If you are investing in gold to protect your portfolio against volatility and inflation, the exposure to the price of gold itself will be more reliable. Gold is used in many industrial processes and Indians love to invest in gold on any occasion possible. Over the long term, gold has been less volatile than other types of investments according to an IBM Management Review paper that compared the relative volatility of gold and silver. However, if you don't invest in physical gold bars but prefer gold watches, you also have to fear that they will rob you in public and that sooner or later you will lose your treasures in this way. Every investment involves risks, but gold has not given any valid reason to invest in gold.
While I wouldn't recommend this if you don't know what you're doing, you can get higher returns compared to just investing in physical gold and those additional instruments give you plenty of room to play with gold investments. Now that you know all the advantages and disadvantages of investing in gold, it's up to you to decide whether you still want to buy gold or, rather, invest in the stock market or real estate.
