Why do we invest in gold? This precious yellow metal serves as a protection against inflation, as its price rises with the rise in the cost of living or during deflation, when the relative purchasing power of gold shoots up, while all the other prices drop sharply. Gold is more of a hedge or an insurance premium, than an actual investment. Other than that, people see gold as a family heritage, preserved and passed on to the future generations.
When you invest in stocks or real estate, there is steady flow of cash. For example, when you invest in a stock, you own a part of the company, so as per the demand and supply in the market, the stock will fetch you returns. Similarly when you buy a property and lease it, you are receiving rental income in the form of steady influx of cash. Gold, on the other hand is dead weight, because once it is purchased nothing can be possibly done to bring in steady cash.
Other than the fact that storing and maintaining gold can be both costly and risky, there are no major tax advantages for gold investments. Also when you buy or sell physical gold, you need to approach a dealer, who take small percentage of the value as commission when you buy from them, and who will then buy from you at a slight discount. So, the overall profit on the returns may be somewhat less than the actual change in price. With ongoing political conflicts in major economies, the transparency while selling and buying gold is minimal.
Real Estate investment is less volatile, and the increase in prices is stable. Real estate fetches interest income, unlike in gold investment. Gold is unproductive in nature, but real estate opens up the possibility of regular rental income. Moreover, the value of your rental property can be increased through renovations and repairs. Investment in gold doesn’t have positive effects on the economy. When you import gold from abroad, you have to pay an additional import duty, which has a directly impact on the devaluation of the currency in the international market. Governments in rising economies promote financial inclusion, and thus you won’t find any tax benefits on gold accumulation. Real estate comes across as a safer bet since, other than the many tax benefits the government provides with, there is always a possibility of decent capital appreciation.
Owning a real estate property is definitely a great asset to have. Aside from the financial implications you can get when you think about selling it in the future, you can also use it as a form of security to ensure that there is something you can leave behind for your family. You can include it in your will or just simply use a TOD deed in which no probate proceedings are needed.
If you really want to invest in gold, make sure your investment doesn’t cross 15% of your overall portfolio. Gold investments aren’t good on the larger scale of the economy. But, real estate investments come with appreciations and regular income flow.