The gold price keeps breaking new records but I’d still rather play today’s geopolitical uncertainty by purchasing FTSE 100 companies in a Stocks and Shares ISA instead. They offer me three things that gold can’t.
Gold can be a great investment. The price is up a stunning 287% over the last 20 years, as it thrives on economic and geopolitical uncertainty. I’d happily put 5% (or at a pinch 10%) of my portfolio into the yellow metal, to diversify from my equity holdings
I wouldn’t buy it at this moment though, as it looks potentially overbought after climbing 20% in a year to almost $2,400 an ounce. Also, gold’s real value is impossible to gauge, given the lack of practical uses. It’s just a play on investor sentiment.
These companies all shine
By contrast, I can use a number of measures to decide whether a stock like NatWest Group (LSE: NWG) is good value. The easiest one is the price-to-earnings ratio, which shows it trading at 5.5 times earnings. A figure of 15 represents fair value, so it looks cheap. A price to-book ratio of just 0.6 also tempts. A figure of one is seen as fair.
Being cheap isn’t everything. NatWest shares have struggled since the financial crisis. They’re up just 0.36% over the last year. However, they’ve jumped 30% in the last three months, after the group reported a 20% rise in 2023 pre-tax profits.
Banking stocks can be volatile, and net interest margins could be squeezed if interest rates fall. But with a trailing dividend yield of 6.23%, NatWest tempts me.
Which brings me to gold’s second drawback. It doesn’t pay any income. By contrast, the FTSE 100 is packed full of high-yielding shares including insurer Legal & General Group (LSE: LGEN). It’s forecast to yield 8.57% this year and 9.05% in 2025.
L&G looks good value trading at 11.1 times earnings but again, the shares have performed poorly, falling 13% over five years, and flat over one year.
Struggling stock markets have hit L&G’s asset management operations. It could continue to flounder until we get a full-blown recovery. In the interim, I will keep investing those dividends to build up my stake until the recovery finally arrives.
This way I get income and growth
Even though the gold price can soar, it can also fall and stay low for years. Shares can be volatile too, of course, but some less than others. Electricity and gas utility National Grid (LSE: NG), for example. It’s a monopoly and its earnings are regulated, and therefore far more reliable than most.
Currently, the stock yields 5.5% a year and has a brilliant record of raising its dividend every year for the past 20 years. It’s not completely risk-free. Maintaining the power network and funding the green transition is massively expensive. National Grid plans to spend £42bn by 2026. It also had net debt of £44.3bn at last count.
The share price has dipped 9.95% in the year but I think that reduces downside risk and today’s valuation of 15.85 times earnings looks like a good entry point. With luck, these three FTSE stocks could give me a combination of growth and income over the long term.
