Why Precious Metals Are a Bad Investment for Your Portfolio

Precious metals like gold and silver are often touted as a safe-haven investment, but the reality is that they can be a bad investment for your portfolio. Historically, precious metals have not kept pace with the stock market or inflation.

Many investors are drawn to precious metals because they're perceived as a tangible asset, but the truth is that they're not as liquid as other investments. According to our analysis, the average annual return on gold from 1970 to 2020 was only 3.6%, while the S&P 500 index returned an average of 10.2% per year during the same period.

Investing in precious metals often requires a significant upfront cost, and storage and maintenance fees can eat into your returns.

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Gold is a bad investment because it pays no interest or dividend. Unlike bonds, gold doesn't generate any returns on your investment.

You might think gold is a safe-haven asset, but the data says otherwise. Over the past 30 years, gold's annualized return, adjusted for inflation, is a mere 2.9%. This is significantly lower than the 7.1% annualized return of the S&P 500 with dividends reinvested.

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Gold's performance is even more underwhelming when looking at shorter time frames. Over the past 20 years, gold's annualized return is 6.3%, still trailing behind the S&P 500's 7.1%. This trend continues down to even shorter periods, with gold's 10-year annualized return being a paltry 0.1%.

Here's a summary of the returns:

Gold's poor performance is especially concerning when considering its role as a hedge against inflation. In reality, gold's been an absolute dud over the past few years as U.S. inflation hit a four-decade high, with a negative annualized real return over the past three years.

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Gold and silver investments have some significant drawbacks. One major con is their poor performance over the long term. In fact, over the past 30 years, gold's annualized returns, adjusted for inflation, have only been 2.9%.

Here are the historical returns for gold and the S&P 500 with dividends reinvested over different time periods:

As you can see, gold's returns have consistently been lower than those of the S&P 500 over every standardized period going back three decades.

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Gold pays no interest, unlike bonds, which means you won't earn any income from your investment. There is also no dividend to look forward to.

The value of gold may not appreciate in value, and it's not a guarantee that it will protect you against inflation, especially in areas like healthcare.

Brokers make money on commissions when selling gold-based products, and they often charge more than the actual price of the metal.

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Investing in gold and silver can be expensive, especially when you factor in shipping fees.

Buying physical gold and silver locally can shield you from risks associated with production costs and political stability.

People who choose to invest in mining companies face higher risks due to factors like production costs and political stability.

You can avoid these risks by buying gold and silver locally, which can be done by simply making an appointment with a gold and silver dealer near you.

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Gold and silver investments don't generate any income, unlike real estate and stocks. You won't earn interest or dividends on your gold and silver holdings.

Unlike a bond, gold pays no interest. This means you'll only earn through capital appreciation or by selling it.

Gold bugs often assure you that you can make money during uncertain economic times, but the opposite is true. The U.S. and Europe are still recovering, and corporations are still making profits.

You can only earn through capital appreciation or by selling your gold and silver. This makes it less ideal for investors seeking steady long-term income.

In fact, gold and silver don't protect you against the worst forms of inflation, which are often in health care.

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You'll pay a higher tax rate on gold and silver investments than on stocks, with a maximum 28% capital gains tax if you hold them for over a year.

This rate is notably higher than the tax rates on long-term capital gains from other investments like stocks, which could leave you with less money in your pocket.

The tax implications alone might make you think twice about investing in precious metals.

Historically, real estate and stocks have been known to offer higher long-term returns compared to precious metals, so you might miss out on potentially higher returns if you only invest in gold and silver.

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Investing in gold and silver comes with tax implications, as the IRS considers them collectibles. This means you'll need to pay attention to tax rates when selling these metals.

If you hold gold or silver for over a year and sell it, any capital gains are subject to a maximum 28% capital gains tax. This rate is notably higher than the tax rates on long-term capital gains from other investments.

This discrepancy can result in you paying more taxes than you would on similar gains from stocks.

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Investing in gold and silver can limit your potential returns. Historically, real estate and stocks have offered higher long-term returns compared to precious metals.

Consulting a coin buyer can give you insights into the current market value of precious metals and help you weigh the opportunity cost.