“Forget stocks, you want gold,” a friend told me recently. And indeed, the gold price is surging. Moreover, the value of bullion has doubled since 2008, reflecting that demand. By contrast, the FTSE 100 is currently only up 2% over the same period.
But despite peaks and troughs, the trend of the Footsie is a positive one. And the index has provided an average 5% return since its inception in 1984.
Moreover, if you’d bought gold back then, you wouldn’t have made any money until 2004, 20 years later! But undervalued UK stocks could have provided high returns.
And now, with the FTSE 100 back at 2012 levels, there are plenty more opportunities to buy UK shares at cheap prices to increase your wealth.
Booming gold price
It’s certainly true that when gold does well, its payback is quite spectacular. But its costs are relatively pricey too. Storage and insurance aren’t cheap and will eat into your investment returns.
It’s also worth pointing out that unlike many FTSE 100 shares, a gold bullion investor receives no income return on the capital investment. If the gold price doesn’t move very much, it’s possible to make more on your investments by putting your money into a standard savings account.
However, the gold price is at its highest point in at least 40 years. Will it go much further? After all it needs to, if you’re going to profit from it.
Quite frankly, nobody knows. Even former Federal Reserve Chairman Ben Bernanke admitted he didn’t understand gold prices. We often see the metal increasing in price along with demand, but also with market sentiment and changing perceptions.
Gold tends to do well when the US dollar weakens against other currencies because it’s sold in USD. Other currencies can then buy more of it, increasing demand. It also does well in times of uncertainty, like the 2008 Global Financial Crisis and this year’s Covid-19 pandemic, as investors look for so-called safe havens.
But it can then fall when normality resumes. And many governments are hoping this will be sooner rather than later.
FTSE 100 stocks, by contrast, enable you to manage your risk better.
FTSE 100 stocks
Despite the recent dip, it’s likely that the FTSE 100 will recover. After all, it always has before. It may be months, it may be longer, but it’s probable. And buying shares in a dip is one of the best ways to make yourself richer because the returns are higher.
Indeed, buying high-quality shares after a dip in the FTSE 100 is often the best time. Unlike commodities such as gold, investors can do their own research into a company’s prospects. By buying great companies in familiar industries, investors evaluate for themselves whether a company has the potential to trade at a higher price.
And with the FTSE 100 producing that average 5% return per year since 1984, the index is a far more dependable means of building your portfolio than buying volatile commodities at peak prices.
Gold may have a place in an otherwise balanced portfolio if bought at a lower price. However, investing in FTSE 100 shares during a market dip makes the most of the stock market’s long-term growth potential. I think this is a far more steady way of getting rich.
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Rachael FitzGerald-Finch has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.