Investing In Gold Vs Real Estate

Key Takeaways

  • Investing in gold coins is just one of several ways to add gold to your investment portfolio.
  • There are numerous pros and cons to investing in gold that investors should be aware of.
  • Deciding whether to invest in real estate or gold comes down to your goals as an investor.

It is well known that a diversified portfolio is key to the success of any investor. However, determining which assets to invest in can be a challenge, as each opportunity comes with a unique set of pros and cons. Investing in gold, for example, can provide the opportunity to expand one’s investment portfolio, though this opportunity is not without certain trade-offs. Keep reading to learn how investing in gold measures up to real estate.

Types Of Gold Investments

It is not uncommon to assume investing in gold strictly refers to buying and selling gold coins. In reality, this is just one of many ways to invest in gold. Here are some other ways to invest in gold if you are interested:

  • Gold Mining Stocks: Some investors will opt for gold mining stocks, as a way to invest in gold without owning any of the physical asset. By purchasing mining stocks, investors can benefit from increased gold production and subsequent increases in its value. However, mining does come with a number of operating risks that can put stock prices at risk if the business fails to perform as anticipated.

  • Streaming Companies: Streaming companies offer another option for investors to work with mining companies. Streaming involves an agreement between companies and mines to purchase gold and other metals in the future (often at a lower rate). These companies allow investors to benefit from the other precious metals that are often extracted as a result of gold mining.

  • Futures Contracts: Gold futures award investors the opportunity to invest in gold indirectly through contracts with other investors. Contracts involve agreeing to buy and/or sell a specific amount of gold at a set price in the future. Investors can benefit from these agreements if the price of gold changes.

  • Gold Certificates: Certificates refer to notes issued by a company that owns gold, and do not involve actually owning physical gold. Investors who purchase gold certificates should exercise caution, as the certificates are only as valuable as long as the company backing them remains in business.

  • Gold Exchange Traded Funds: Exchange traded funds (ETFs) allow investors to invest in shares of a company that purchases physical gold on behalf of its shareholders. Investors will likely have to pay a commission to trade ETFs and monitor the changes in the price of gold. This is an attractive option for investors looking for gold assets with high liquidity.

  • Jewelry: This is one of the most well-known avenues to get started in gold investing. Investing in gold jewelry involves purchasing high-quality pieces (usually 14-karat gold or higher) and selling them later for a profit. Investing in gold jewelry can be somewhat difficult, as many investors find it challenging to sell pieces for a profit down the road.

  • Physical Gold: Physical gold offers investors the chance to own gold bars or coins. They profit by selling these items once the value of gold has increased. Physical gold can be difficult to liquidate, and investors should exercise caution when storing large amounts of gold.


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gold futures

Investing In Gold Pros & Cons

With any investment opportunity, it is crucial to carefully weigh the pros and cons before making a decision. Below are some of the advantages to investing in gold:

  • High Liquidity: Gold is used by a number of industries, ranging from fashion to technology, therefore making it a highly liquid asset (in some forms). This provides investors the opportunity to buy and sell gold relatively easily.

  • Worldwide Demand: Investors will be hard-pressed to find opportunities that operate on such a wide market. Those who choose to work with gold will find themselves in a position to invest in a market with global demand.

  • Diversification: Perhaps the most attractive benefit of investing in gold is that it offers the chance to diversify one’s investment portfolio. Be sure to read this infographic to learn about other investment opportunities that can help diversify your portfolio.

While the benefits of investing in gold are attractive, there are certain considerations investors should be aware of. Here are a few cons to examine before investing in gold:

  • Storing Costs: Investors who decide to invest in physical gold may find it requires a safe or deposit box to store safely. Before investing in jewelry or other physical assets, it is important to ensure these storing costs do not outweigh the potential returns.

  • Low Yield: While there is no doubt that gold is valuable, it is important to note that physical gold does not generate income over time. Investors only stand to profit from physical gold through capital gains, after selling the asset.

  • Lack Of Financing: One of the biggest challenges to investing in gold, is that there are not financing options available. While the various types of gold require different amounts of capital to get started, investors may find an overall lack of financing options for purchasing gold.

investing in gold coins

Is It Better To Invest In Gold Or Real Estate?

Investing in gold can represent an attractive opportunity for those wishing to diversify, though it does not offer high returns on its own. For this reason, many investors may turn to more lucrative investment opportunities, such as real estate. Real estate properties, when managed correctly, represent the chance to earn monthly income, in addition to profiting from appreciation over time. As I mentioned above, gold can only offer capital gains once it has been sold. Due to this major difference, investors often find real estate more profitable when compared to gold investments.

Real estate can also enable beginner investors to get started at a lower cost when compared to gold. For example, there are numerous forms of financing available to those interested in real estate investing. Gold, on the other hand, does not offer the same financing options upfront, and can take significant capital to break into. Check out this guide on financing your first investment property to learn how to get started in real estate with little-to-no capital.

There are also a few benefits to real estate investing that simply do not translate to investing in gold. Here are a few characteristics of real estate that investors should make note of:

  • Owning Functional Assets: Real estate represents the opportunity to actually make use of the investment. Through renting, real estate is utilized directly in ways that physical gold is often not. (Jewelry represents an exception, though depending on the value of the item investors may not consider the asset wearable).

  • Potential For Negotiations: When purchasing real estate, investors have the opportunity to negotiate the sale price, and can even add contingencies to an offer. Gold is sold at non-negotiable prices that are determined strictly by the economy.

  • Affordability: Real estate depends significantly on the local market, thus allowing investors to operate in more affordable areas. Because gold operates on a global market, investors may not find as much flexibility in pricing as they try and build a portfolio.

Gold can represent an opportunity to diversify one’s investment portfolio. However, investors who opt for gold as a solitary investment may not find comparable returns when considering real estate. Real estate offers the opportunity to generate income over time, and is often easier to break into. Keep this in mind as you determine which investment opportunities are right for you.

Summary

Investors should look at the numerous ways to get started investing in gold in order find the right opportunity for them. Instead of asking whether or not to invest in gold or real estate, it is often more helpful to consider the ways in which these two assets can contribute to a stronger portfolio overall.

Which types of gold were you unfamiliar with? Let us know what you learned in the comments below:

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