If you asked a hundred people the simple question, “Where should I put my money?”, what do you think the answer would be? “The banks of course, silly!”
But if you ask a financial expert, he’ll give it to you straight. “If there’s economic uncertainty, get ready to lose your money’s worth!
You see, In times of economic uncertainty, currency value drops because people flock toward safer investments. By Investments, we mean assets that hold the actual value. Unlike paper money, which is just your nation’s central bank’s guarantee.
So naturally, investors will put their money into assets that don't depreciate. Gold is a good example of this move. But with that being said, is it really worth replacing actual cash with a precious metal like Gold?
In this blog post, we'll examine each financial instrument to help you determine the best way to secure your wealth in uncertain times. Brace yourself!
Beyond its shiny exterior, gold holds a lot of financial promise. Firstly, it never depreciates in times of economic uncertainty. Secondly, it is a strong hedge against inflation and more! Let’s discuss these aspects in a little more detail.
Gold is an asset that protects an investment portfolio against negative economic events. For example, if you’ve invested your money into stocks or crypto, you can be certain of their volatility.
Gold on the other hand is a stabilizing asset. Due to its scarcity, It’s considered valuable, is recognized as an ancient form of savings and wealth, is used in the fields of health, art and technology and billions of people wear it as ornaments.
That’s why billionaires like Ray Dalio have made it a point to include Gold investments in their portfolios so that if other assets see a drop in value, Gold can act as a protector.
Gold has been used as money for at least 6,000 years!
This is due to its distinctive and durable nature. This characteristic of Gold has ensured gold to remain a good medium of exchange since ancient times.
Furthermore, due to its intrinsic nature, Gold is easier to trade, and is a readily saleable asset due to its high demand.
Gold is a durable item that can survive natural disasters and withstand decay. It can stand the test of time which is why it was the primary form of currency for thousands of years.
In its purest form, the metal doesn't rust, ensuring its value is bound to stay on the high side. Hence, ancient Gold coins discovered in 2022 can be retrieved in pristine condition thanks to their durable nature.
Gold is difficult to find and convert as a precious metal to finished products. There's also the fact that there's a finite amount of precious metal deposited on earth. This causes Gold's value to keep rising due to a low volume of circulation.
Gold prices tend to go up in periods of financial crisis or economic downturns. When such circumstances arise, companies fail to reach their revenue targets. This often negatively affects their stock price.
Gold however retains its intrinsic value and preserves your purchasing power even in times of sheer uncertainty or even economic collapse.
When interest rates are low, consumption increases leading to inflation in an economy. Central banks often lower or hike interest rates in a bid to boost spending in an economy. Since this is a normal measure, it can happen frequently causing money to lose its value.
However, Gold acts as an inflation hedge and brings stability to the economy. It reduces market volatility and actually saves your investment portfolio from further damage.
Gold can help you diversify your investment portfolio because it has a low connection to other conventional assets like Bonds, Stocks and Crypto. Therefore, when assets such as stocks decline in value, the gold price rises to manage the losses to your portfolio.
This is why Ray Dalio in his all weather portfolio strategy actually maintains 7.5% Gold in his investment portfolio to continue its growth even in poor economic times.
In the world of finance, there’s a common saying that goes like "cash is king." This is despite the popularity of credit cards and other cashless alternatives. Holding cash can also be a good idea.
Just when the economy is doing well. Many investors hold cash when stock prices are high and they want to avoid paying premium prices.
Another reason for investors to hold cash is to endure stock market volatility. But that’s just the tip of the iceberg. Cash also has its upsides. Let’s check them out below.
Cash is a very stable asset, especially when held in powerful currencies like Dollars, AEDs, Euros and more.
It can also be kept as a bank deposit and monitored via ledgers and bank accounts. Moreover, users can also transfer and trade the cash in their possession anytime they want. Furthermore, It can be kept in a storage facility as well. (Although its durability isn’t guaranteed over long time frames.)
When you hold cash in a bank, it can enable you to gain interest. But, the returns are much lower than if you compared them with the stock market or if you kept your money in Gold.
That said, holding money is a decent option to save your wealth but just not as profitable as other assets.
Cash is a liquid asset which means it can be readily exchanged for other tangible items and services. This ability allows investors to hold and release their cash at will. You can choose to deposit or withdraw it from the bank anytime. You can also use it as a form of exchange to buy goods or services.
Additionally, investors can use cash to invest in other asset classes when the market is favorable. This can be when the current market prices are low. In such periods, it's always a good idea to have available cash. This is so investors can quickly react to changing market situations.
While cash has its upsides, there are significant downsides and risks to holding cash too. For instance, if the economic situation is poor, cash can be a negative-yielding asset. Therefore, if you’re planning to stick to cash as a wealth-saving strategy, keep these risks in mind:
It's difficult to see cash as a scarce asset. For instance, the U.S. dollar is printed by the United States federal government.. This means that they can produce only an infinite amount of cash.
But, this creates a financial problem as well. If there’s too much cash in circulation, its value will drop due to inflation. This means you’re always at risk of losing your purchasing power.
Cash is fiat money, meaning there’s no intrinsic value. This is because it’s not backed by a physical commodity like being under the gold standard. It only holds value because the federal government considers it a medium of exchange and a legal tender.
Fiat currencies can fall in value when the economy is unstable. This causes users to lose faith in cash and switch to more stable commodities, i.e., Gold.
Unlike most assets, cash isn't backed by anything. Its value is based on fiscal and monetary policies from the government and central bank. If these become ineffective, they can result in inflation or hyperinflation. It is important to note that these are issues that never affect Gold bullion.
Having short-term access to cash is a good idea if you need to handle unplanned expenses. However, your wealth won't grow if you leave it in cash.
Your best option is to diversify your portfolio with an asset like Gold. The benefits of Gold are aplenty as stated above in this article.
If you want to learn more about the benefits of Gold in greater detail, check out this page on the ISA Bullion website. Ultimately, the key point to remember about Gold vs Cash is that the former appreciates over time and maintains its value during periods of economic uncertainty and inflation.
This is why Gold is a highly lucrative investment and wins the cash vs gold debate every time hands down. Even if someone stores Gold today and retrieves it after 1000 years, it would still be worth a fortune, however, cash is just a legal tender guaranteed by the government.
Countries may perish, borders diminished and governments gone, but Gold is here to stay as long as there are humans alive.
If you’re looking to save your true wealth then investing in Gold with ISA Bullion is your best option.
Our app and dashboard platform can give you access to all the trading tools you need to boost your investment portfolio and profits. Starting Gold and Silver trading is super easy with ISA bullion.
To understand how easy Gold trading is with ISA Bullion, check out our guide and safeguard your wealth from enormous cash risks.