Should you buy gold with gold prices soaring or buy stocks for the long term growth stocks have traditionally provided? A follow up question is how to invest in 2010 and beyond in gold and stocks without taking heavy risks. Here we take a look at gold vs. stocks from the average investor’s point of view.
What does history tell us about gold vs. stocks as investment options… or precious metals vs. equities? Except for the past 10 years or so, equities (stock investments) have produced average long-term returns of about 10% a year, while the yellow metal has had a sketchy record. Its price was fixed at $35 an ounce in the U.S. from the 1930’s through the early 1970’s. It then traded up to $200 within a few years and hit $850 in 1980. When stock investments were soaring in the 1990’s, the world’s favorite precious metal was a dead issue, settling back to below $300 by the end of the decade.
In the past 10 years or so, gold vs. stocks has favored the former which was trading at an all-time high of over $1200 an ounce in 2010, while equities struggled through the ongoing fears of a threatening financial crisis. So, the question is how to invest in 2010 and going forward… buy gold at record prices, or buy stocks? Keep in mind the following: from 1982 through 1999, investing was easy as the stock market had its longest run upward in history. Since then investors have had a rough road to travel with fear and uncertainty the rule rather than the exception…which no doubt explains the rise in precious metals prices.
Both investment options belong in the average investor’s portfolio, and you don’t need to take on excessive risk to own both. Equity funds (mutual funds) are the answer to how to invest in 2010 and going forward. Diversified equity funds that invest in U.S. companies and funds that invest internationally should be held for long-term growth and higher returns over the long term. Equity funds that specialize in the precious metals sector should be held as a hedge against uncertainty. These precious metals funds own shares in companies that mine and process the yellow metal as well as silver and other rare metals. When these commodities rise in price, fund investors go along for the ride.
In fact, by holding both diversified equity funds and precious metals funds you actually lower the overall risk in your portfolio as one can work to offset losses in the other over the long term. So, it’s not really a question of gold vs. stocks for the average investor; but rather how much to invest in each as a percent of your total stock or equity portfolio. As a rule of thumb for your stock portfolio, here’s how to invest in 2010 and beyond if you are an average investor in search of growth without undue risk.
Invest 50% in diversified domestic (U.S.) equity funds… 25% in diversified international funds… and no more than 10% in precious metals funds. With the rest you might want to explore the investment options in other specialty funds, like: real estate and natural resources funds. Diversification will be the key to success in the uncertain times that lie ahead. And the average investor’s best way to diversify is through mutual funds.
Source by James Leitz
Should You Buy Gold Or Buy Stocks in 2010 & Beyond?
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