Gold and silver have long been seen as safe haven investments, especially during economic instability. Their allure is undeniable – these metals have intrinsic, enduring value and provide a sense of security. However, personal finance expert Dave Ramsey firmly states that gold and silver are actually relatively poor investments for building long-term wealth. In his trademark direct style, Ramsey advises steering clear of precious metals altogether when constructing your investment portfolio.
In this article, we’ll explore Dave Ramsey’s standpoint on gold and silver investments. Examining his commentary over the years, we’ll discuss the historical data, tax implications, liquidity challenges, and emotional factors he cites. Ramsey makes a compelling case for why gold and silver fail to deliver satisfactory long-run returns for most investors. By surveilling Ramsey’s advice, you can gain critical insights into the downsides of precious metals investing and make informed decisions aligned with your risk profiles and financial goals.
Investing in gold and silver has been debated for many years. Some see it as a safe haven, especially during turbulent economic times, while others view it as a volatile commodity that doesn’t yield consistent returns. Dave Ramsey shared his insights on this topic on his talk show. Let’s dive deeper into what he has to say.[1] [2] [3]
Dave Ramsey Says This About Gold and Silver:
“I’d stop investing in gold and silver completely. I don’t put money in precious metals at all because they have a lousy long-term track record.”— Dave Ramsey[4]
“I don’t buy precious metals at all because I like my money—I don’t want to lose it. That simple.” — Dave Ramsey
“Commodities are always going up and down, up and down. It’s got a poor rate of return, and there’s nothing that drives the price except for people’s fear or greed.” — Dave Ramsey[5]
The Emotional Pitch of Gold and Silver Investments
Many people are drawn to gold and silver investments because of the emotional security they feel it provides. The allure of holding something tangible, something that has been considered valuable for centuries, can be comforting. This emotional connection often stems from historical events where gold and silver were considered the ultimate wealth. However, as Dave points out, this emotional pitch can sometimes cloud your judgment, making you overlook the actual performance and viability of such investments. Separating emotion from fact is essential when considering where to place your money.
Historical Track Records: Gold vs. Traditional Investments
When considering any investment, it’s crucial to look at its historical performance. Dave mentions that over the past 50 years, gold has only provided about a 2% rate of return. In comparison, traditional investments like real estate or growth stock mutual funds have shown much more promising returns over the same period. For instance, the stock market, on average, has returned about 7% annually after adjusting for inflation. Real estate, too, especially in booming markets, has often outperformed gold.
The Myth of Gold in Economic Crashes
A common belief is that in times of economic downturns or crashes, gold becomes the go-to medium of exchange. However, Dave debunks this myth by highlighting that no modern economy has reverted to gold as a primary medium of exchange during a crash. Instead, other forms of currency or barter systems have taken precedence. For instance, during the Great Depression, while many were hoarding gold, it wasn’t the primary medium of exchange. People traded services and goods and relied on paper currency.
Gold as a Commodity: The Volatility Factor
Gold, like oil or wheat, is a commodity. Its price is driven by demand, not by its inherent ability to generate income. This makes commodities, including gold, inherently more volatile. Their prices can swing dramatically based on external factors, such as geopolitical events, interest rate changes, or shifts in industrial demand. This volatility can make gold a risky investment choice, especially for those looking for steady, long-term growth.
The Real Cost: Tax Implications of Buying Gold
Investing in gold isn’t just about purchasing and waiting for its value to increase. There are also tax implications to consider. As Dave points out, some families end up paying a significant amount in taxes when buying gold, which can eat into any potential profits. In some jurisdictions, gold is considered a collectible, and any gains from its sale can be taxed at a higher rate than other investments.
Turning Gold into Cash: When and How
If you do invest in gold, there will likely come a time when you want to convert it back into cash. Dave suggests holding onto gold investments for a short period, perhaps a year, to avoid hurting any feelings (especially if the gold was a gift) and then selling it. But personally selling physical gold isn’t always straightforward. You’ll need to find a buyer willing to pay a fair price, and the process can sometimes be more time-consuming and costly than selling stocks or bonds.
The Influence of Fear and Greed on Gold Prices
Two primary emotions drive the price of gold: fear and greed. When people are fearful of economic downturns or geopolitical events, they might flock to gold, driving its price up. Conversely, they might sell when they’re feeling greedy or optimistic, driving the price down. This emotional rollercoaster can make gold a challenging investment to navigate. It’s essential to be aware of these market sentiments and not get swayed by the herd mentality.
Comparing Gold’s Return on Investment Over the Years
Over the years, gold’s return on investment has not been particularly impressive, especially when compared to other investment avenues. While it might have its moments of outperformance, overall, it has not been the most reliable or profitable investment. It’s essential to diversify investments and not put all your eggs in the gold basket.
Dave Ramsey’s Personal Stance on Gold and Silver Investments
Dave Ramsey has made it clear on his show that he doesn’t see gold and silver as wise investments. He doesn’t own any gold or silver (outside personal items like jewelry) and believes there are better, more stable ways to invest one’s money. His approach emphasizes diversification, long-term growth, and investments that generate income.
Key Takeaways
- Gold and silver investments are often driven by emotion rather than facts and historical performance data. Don’t let fear or greed cloud your judgment.
- Over the past 50 years, gold has only yielded around 2% returns on average, while stocks and real estate have performed much better over the long run.
- Contrary to popular belief, gold does not become the primary currency in economic crashes. Other mediums of exchange take precedence.
- As a commodity, gold prices fluctuate wildly based on supply and demand. This volatility makes it a riskier investment option.
- Consider tax implications before investing in gold, as gains may be taxed at higher collectible rates in some areas.
- Selling gold can be more difficult than liquidating other assets. Make sure you have a buyer and understand the costs.
- Letting emotions drive your gold investment decisions can lead to buying high and selling low. Stay rational.
Conclusion
Dave Ramsey strongly advocates diversifying your investments across various asset classes and steering clear of gold and silver. While precious metals have an alluring appeal and history, their returns and volatility make them less than ideal-investments for most people seeking stable, long-term growth. Thoroughly research any investment under consideration, and don’t let fear or greed override sound judgment. Maintain a balanced portfolio aligned with your risk tolerance and goals.
While gold and silver might seem like attractive investment options, it’s essential to look beyond the glitter and evaluate their actual worth. As Dave Ramsey suggests, there might be better ways to secure your financial future. Always do thorough research and consult financial advisors before making investment decisions.