In 1990, the price of gold was $423.80 an ounce.  I got that price from the usual benchmark for the price of gold, which is known as the London Fixing.  This is where the price of gold is established; and it is done twice a day by five representatives from bullion trading firms.  The price of gold as of February 29, 2008 was $971.50.  Wow! Big increase!  We should have invested in gold in 1990.  Not really. 020117_1267_0016_lsms

Let’s say we had 1000.00 dollars to invest in 1990 and we could pick either gold or large cap growth mutual funds.  Which would have been the smartest investment?

Gold has went up to $971.50 divided by $423.80 = 129 % increase.  Not bad, huh? But this was over an 18 year period.

Mutual funds are harder to examine, since one could argue that they are all different and it would depend which one we pick to compare.  Many mutual funds have not been in existence for 18 years, although some have, but we will look at those that have been around for 10 years, assuming you could switch to another one if need be.  In looking at the 129% increase of gold, we could simply divide that by the 18 years to get about 7% a year.. It is really not all that simple with compounding interest, etc. but this will get us close enough to compare.

We need to make at least 7% on mutual funds per year.  I need go no further.  Most good growth mutual funds average 10-14% per year.  Let’s assume 10% to be conservative.

Invest in Gold in 1990  – $1000 becomes $2290 in 2008.

Invest in mutual funds in 1990 – $1000 becomes $2800 in 2008.  This could easily be $3520 at 14%.

My purpose in writing this is simple.  You will be hearing an awful lot in the coming days and months about “investing in gold”. It happens every time the economy has a slight downturn. (We are in a slight downturn or correction, not a recession).  All the gold believers come out and say you should invest in gold and get out of the stock market.  You should be aware that it simply is not the best you can do.  Sure single stocks are wildly risky in my book, and I would advocate to get out of them.  But not to go to gold.  Gold looks really good but I would rather invest in a company that makes things and sells things and makes a profit, than I would a chunk of metal.  Be sure to check out my article on how to make a million dollars.

As with all my financial or tax advice, I am not advising as a professional and I give no professional legal or tax advice. If you need professional advice, please get that from a CPA or attorney.

Tell me what you think?  Do you invest in gold?  Leave a comment and start the discussion. If you think this article would be good for others to read, help me by submitting it to whatever “social bookmarking” sites you use.  Thanks for coming by.  I appreciate you taking the time to read.  Hope it helps.