April 11, 2013
Commodities like gold and silver make poor long term investments. Why? Alternatives?
Commodities like gold and silver make poor long term investments. Why? Alternatives?
If you were to invest in gold or silver you would have a bad time because the price, both gold and silver, are driven by speculation that will eventually cause the price to rebound back to a normal level (essentially the gold/silver bubble will pop).
A better idea would be to diversify. Do not try to time the market. Put money into no-load index mutual funds instead. Instead of trying to play whats hot, get your money spread out so you have a better return on your investment, and you would have less risk.
Well put, Thomas. Let’s recap your points. Gold and Silver have relatively poor historical yearly returns (roughly 4%) as they have barely beat inflation over the last 80 plus years. The last 10 years or so have been very good, but just as Thomas stated, they will be heading back to their historical returns over time (reversion to the mean). The bubble may go pop or it may just slowly fizzle out, but you can bet your bottom dollar it will happen (it may be happening right now).
Focusing your efforts on no-load index mutual funds that diversify your investments throughout the globe in many sectors will reduce your risk dramatically and history shows us that your yearly returns will be more than two times better (roughly 10%) than those commodities. Diversity is your friend just as Thomas stated. You can find a list of recommended index funds on my website under the investing tab and specifically under the become a wise investor tab. Educate yourself, select your asset allocation (bond and stock index funds), buy them, rebalance periodically over time, and most importantly, stay the course through good times and bad. Be the wise investor!
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