Gold and silver have long been considered safe havens, particularly in times of economic instability. Their appeal is undeniable: these metals have intrinsic and lasting value and provide a feeling of security. However, personal finance expert Dave Ramsey strongly asserts that gold and silver are actually relatively poor investments for building long-term wealth. In his characteristic direct style, Ramsey advises avoiding precious metals altogether when constructing your investment portfolio.
In this article, we will explore Dave Ramsey’s views on investing in gold and silver. Looking at his comments over the years, we’ll discuss the historical data, tax implications, liquidity challenges and emotional factors he cites. Ramsey convincingly lays out why gold and silver fail to generate satisfactory long-term returns for most investors. By monitoring Ramsey’s advice, you can gain essential insight into the downsides of investing in precious metals and make informed decisions based on your risk profiles and financial goals.
Investing in gold and silver has been the subject of debate for many years. Some see it as a safe haven, especially during times of economic turmoil, while others see it as a volatile commodity that does not generate consistent returns. Dave Ramsey shared his thoughts on this topic on his talk show. Let’s dig deeper into what he has to say.(1) (2) (3)
Dave Ramsey says this about gold and silver:
“I would completely stop investing in gold and silver. I don’t invest in precious metals at all because they have a poor long-term history. » –Dave Ramsey(4)
“I don’t buy precious metals at all because I love my money: I don’t want to lose it. It’s simple.” -Dave Ramsey
“Commodities always go up and down, up and down. The rate of return is low and nothing drives prices up except people’s fear or greed. -Dave Ramsey(5)
The emotional pitch for investing in gold and silver
Many people are attracted to investing in gold and silver 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 emotion can sometimes cloud your judgment, causing you to overlook the actual performance and viability of such investments. It’s essential to separate emotions from facts when thinking about where to put your money.
History: Gold vs. Traditional Investments
When considering an investment, it is crucial to look at its historical performance. Dave mentions that over the last 50 years, gold has only provided a rate of return of around 2%. In comparison, traditional investments like real estate or growth stock mutual funds have shown much more promising returns during the same period. For example, the stock market has averaged an annual return of about 7% after adjusting for inflation. Real estate also, especially in booming markets, has often outperformed gold.
The myth of gold in economic crashes
A common belief is that in times of economic downturn or crash, gold becomes the preferred medium of exchange. However, Dave debunks this myth by pointing out that no modern economy has reverted to gold as the primary medium of exchange during a crash. Instead, other forms of currency or barter systems took precedence. For example, during the Great Depression, while many hoarded gold, it was not the primary medium of exchange. People traded services and goods and relied on paper money.
Gold as a commodity: the volatility factor
Gold, like oil or wheat, is a commodity. Its price depends on demand and not on its inherent ability to generate income. This makes commodities, including gold, inherently more volatile. Their prices can vary significantly depending on external factors, such as geopolitical events, changes in interest rates or changes in industrial demand. This volatility can make gold a risky investment choice, especially for those looking for steady long-term growth.
The Real Cost: The Tax Implications of Buying Gold
Investing in gold is not just about buying and waiting for its value to increase. There are also tax implications to consider. As Dave points out, some families end up paying significant taxes when they buy gold, which can reduce their potential profits. In some jurisdictions, gold is considered a collectible and any gains from its sale may be taxed at a higher rate than other investments.
Transform gold into cash: when and how
If you invest in gold, there will probably come a time when you want to convert it back to cash. Dave suggests holding onto your gold investments for a short time, perhaps a year, to avoid hurting your feelings (especially if the gold was a gift), and then selling it. But personally selling physical gold is not always easy. You’ll need to find a buyer willing to pay a fair price, and the process can sometimes be longer and more expensive than selling stocks or bonds.
The influence of fear and greed on gold prices
Two main emotions determine the price of gold: fear and greed. When people are afraid of an economic downturn or geopolitical events, they may turn to gold, which causes its price to rise. Conversely, they may sell when they feel greedy or optimistic, driving the price down. This emotional roller coaster can make gold a difficult investment to manage. It is essential to be aware of these market sentiments and not get swayed by the herd mentality.
Comparison of Gold ROI over the years
Over the years, gold’s investment return has not been particularly impressive, especially when compared to other investment avenues. Although it may have moments of outperformance, overall it is not the most reliable or profitable investment. It is essential to diversify your investments and not put all your eggs in the golden basket.
Dave Ramsey’s Personal Position on Gold and Silver Investing
Dave Ramsey made it clear on his show that he does not consider gold and silver to be wise investments. He owns no gold or silver (aside from personal items like jewelry) and believes there are better, more stable ways to invest his money. Its approach emphasizes diversification, long-term growth and income-generating investments.
- Investments in gold and silver 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 returned an average of around 2%, while stocks and real estate have performed much better over the long term.
- Contrary to popular belief, gold does not become the primary currency in the event of an economic crash. Other means of exchange have priority.
- As a commodity, gold prices fluctuate wildly depending 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 levy rates in some regions.
- Selling gold can be more difficult than liquidating other assets. Make sure you have a buyer and understand the costs.
- Letting your emotions guide your gold investment decisions can lead to buying high and selling low. Stay rational.
Dave Ramsey strongly advocates diversifying your investments across various asset classes and avoiding gold and silver. Although 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 you are considering and don’t let fear or greed override your good judgment. Maintain a balanced portfolio aligned with your risk tolerance and goals.
While gold and silver may seem like attractive investment options, it’s essential to look beyond the glitter and assess their true value. As Dave Ramsey suggests, there may be better ways to secure your financial future. Always do thorough research and consult financial advisors before making any investment decisions.