Money makes the world go round, and investing is one of the most important steps you can take towards increasing your personal wealth.
We are bombarded with so many investment options that make us scratch our heads thinking about what we should invest in? Stocks, mutual funds, precious metals, real estate, and businesses are just a few of many investment options, and it makes it hard to decide where to place your money.
Thankfully we have plenty of data that helps us assess different forms of investment. By comparing the trends and historical returns for various investments, we can see how some assets evolved overtime and predict if it still represents a reliable investment opportunity today.
Let’s take a more in-depth look at how the value of gold stacks up against other markets and how it compares to other important investments such as the stock market or real estate?
Examining Gold Trends
There are many financial experts out there who claim that gold has never been a more promising investment. Even during some of the worst historical economic downturns, gold was able to gain value and hedge against inflation. If we look at how gold increases in value over time, we can understand why many consider it a solid investment.
In the US, the value of gold was what underpinned currency until the 1930s. At the time, Congress nullified creditors’ rights to receive gold payments; therefore, the gold standard was lost.
Many proponents of keeping the gold standard say it enforced discipline for the modern lending standards since dollars would always have to be linked to real gold. Even though gold value peaked in 1980, it maintained the upward trend during major economic recessions such as the pandemic and the Great Recession.
It is also why many people view gold as a way to combat the inflationary practices that are typically set in motion by a recession. The same trend can be seen during the Great Recession from 2007 - 2009 when the value of gold steadily tracked upwards.
Thanks to the historical economic data that shows an increasing value for gold in the past years, many consider it one of the best investments.
Overview of The Stock Market
Stocks are subject to several different risks, such as economic, market, and inflationary risks. Stock values are known for being very volatile, and their prices experience many fluctuations in the market.
The volatility is mostly impacted by company events, and it may be rooted in geopolitical causes. For example, a company with operations in a foreign country is subjected to that nation’s rules and regulations. If the country has economic problems or other political troubles, the company stocks may suffer.
Other risks may emerge for investors that choose not to diversify their shares, as a singular event could expose them to significant risks. On the other hand, the stock market has always provided a simpler alternative for the research process since the indexes do the heavy lifting for investors. You don’t have to study relevant companies' performance on an individual basis, as long as you can track the index.
However, if we take a look at the major stock indexes such as NASDAQ, Dow Jones, or S&P 500, there is a notable trend for some of these major stocks.
Dow Jones has experienced a year-over-year positive value increase in the past decade, until the end of 2020, when the stock devalued by 6.6% compared to the previous year.
The same trend can be observed for S&P 500, but the depreciation was much lower at only 0.8% at the end of 2020. NASDAQ stock holds its positive year-over-year growth even through 2020, making it still one of the most reliable stock investments.
Overview of The Real Estate Market
When it comes to real estate, investors have plenty of options, from commercial, residential, or even more specific niches such as container housing, luxury homes, or housing for the disabled. However, there is some risk associated with real estate.
One of the big risks is that people don’t do their research in a market that requires a lot of it. Real estate is not a market you can easily tackle and expect immediate results and returns. You have a market that is not easily liquidated with real estate, unlike stocks, and you can’t cash in quickly.
There are many risks associated with handling repairs and managing rentals for house flippers or rental property owners. Some of the issues faced by the two are the costs and the time and energy of dealing with tenants.
Real estate also requires a considerable amount of money to begin with. However, real estate investors can gain leverage on their capital and take advantage of tax benefits.
Despite not being nearly as liquid as stock, real estate provides a long-term cash flow through passive income and the promise of appreciation in the future.
If we study only the housing market that focuses on single-family homes, we can observe a noticeable appreciation in value over time. In the past eight years, the year-over-year appreciation of single-family homes was positive, with one of the highest value increases of about 10% in 2013.
You don’t need to be a real estate agent to understand that the housing market is one of the best long-term investments. Still, you can certainly find a real estate agent who can provide more insight into some individual housing markets.
Which One to Invest in?
Each of the three investments presented in the article has its advantages and disadvantages, and some might come out better than others in specific scenarios.
If we analyze the trends, we can see that gold scales best during a recession, as was observed in the past. With an upward trend during the Great Recession and increasing in value even though the pandemic, many find it the ideal investment opportunity of 2021.
However, gold is “dead weight” compared to an owned property that generates a monthly income. It might require more significant cash investment at first and not generate a lot of money initially, but it scales really well long-term, unlike gold, which is experiencing heavy fluctuations.
Unlike real estate, stocks are highly liquid, but they are more volatile than real estate. The factors that impact values and prices in real estate vs. stock are very different. Over time some of the major stocks have managed to hold their value reasonably well, but studies show that both stock and real estate took a big hit during economic recessions.
Gold’s luster has yet to fade, but it seems that it shines even brighter now through the great recession and the pandemic. Gold remained steadier than larger stock market indices, and it fares better in terms of value than other precious metals. However, many would prefer to stick to buying houses and buy gold later on.
You can also diversify your portfolio and consider both gold and stock or real estate, so you minimize your risks if one market experiences a collapse.
Conclusion on Investments
Investing in real estate, stocks, and gold presents risks and rewards. The stock market gets a lot more attention as a retirement investment vehicle. However, diversifying your portfolio is important in the long term.
Investors with various asset classes are less exposed to risks, and real estate is one of the ideal ways to diversify your portfolio, maximize returns and reduce risks.
Many investors put money both in stocks and real estate, but eventually, your expertise in the area where you keep all your assets will have the most significant impact on your investments.
About the author: The above article on Investment: Real Estate, Gold, or Stock Market was written by Beni Restea. Besides the professional career that took him through multiple experiences and milestones, Beni’s economics and science background helped him succeed both in technical work and content creation for different branches of economics, real estate. Beni is very passionate about real estate, finance, and traveling, which is the motivating force behind the inspiring topics he writes about for RealEstateAgent.com.