Investing in gold can be a great way to diversify a portfolio and hedge against market declines. But does gold outperform the S&P 500? Let's take a look at the facts. Gold is not an income-generating asset, and its return is based entirely on price appreciation. It also requires one-time costs for storage and insurance.
Although traditionally considered to be a safe asset, it can be very volatile and fall in price. The S&P 500 presented an annualized return of 13.8% with dividends reinvested during the last decade ended in March, while benchmark Treasury bonds obtained 2.2% and gold 3.1%. With all investment portfolios, diversification is important, and investing in gold can help diversify a portfolio, usually in market declines, when the price of gold tends to rise. With a total return of almost 2.075% during that period for an annual growth rate of 36%, gold outperformed an almost dying stock market.
Gold-backed bond yields significantly exceeded the price of gold by itself and by S&P 500. It is supposed to act as a safety net when markets are in decline, since the price of gold does not tend to move with market prices.When evaluating the return of gold as a long-term investment, it really depends on the period of time being analyzed. Gold is not an infallible investment, as is the case with stocks and bonds, its price fluctuates depending on a multitude of factors in the world economy.The Solactive gold-backed bond index, which invests in a portfolio of investment-grade corporate bonds covered at the price of gold, has followed a pre-creation history since January. When the line is above the y-axis, gold has outperformed over the past year and when it is below gold it has underperformed.For example, during certain 30-year periods, stocks have outperformed gold and bonds have been similar to each other, but for some 15-year periods, gold has outperformed stocks and bonds.
One reason is that gold is not an income-generating asset nor does it represent growth in a particular company or sector.Therefore, it can also be considered a risky investment, since history has shown that the price of gold does not always rise, especially when markets soar. But despite what should be a much better year for the economy than last, some investors may still be tempted to buy gold in this fall.
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