We live in an age that is obsessed with the stock market. Many people assume that buying stocks is a better option than buying gold. Yet, research suggests that that is not quite true and that gold is a better investment than most stocks.

Stocks Are Riskier than Gold

Unless a person is a skilled stock picker like Warren Buffett, or fully diversified, owning an exchange-traded or mutual fund that tracks the S&P 500, or a broader market index like the Russell 3,000, that person’s level of risk is insane. In ground-breaking research, Hendrik Bessembinder found that four out of seven stocks had returns worse than one-month Treasuries, between 1926 and 2018. Indeed, just 4% of stocks were responsible for all the wealth creation in the stock market, with 96% having returns that matched those of Treasury bills. A person who isn’t fully diversified or highly skilled in stock picking, will not beat Treasury bills in the long run, and remember, Treasury bills have returns lower than gold. When people talk about gold versus stocks, they are usually talking about gold versus the universe of stocks, and don’t stop to ask how gold performs against individual stocks.

Gold Shines in Uncertainty and Inflation

Over the long haul, the picture is not as clear as you would think. Over some 30-year periods, stocks do outperform gold and bonds, with gold and bonds having similar returns. However, over some 15-year periods, gold has outperformed both stocks and bonds.

In fact, gold has outperformed the S&P 500 over the last year. We can look back further: between 1990 and 2020 gold gained 360% compared to 991% for the Dow Jones Industrial Index (DJIA) by 991%. However, in the 15-year period, 2005 to 2020, gold rose 330%, compared to just 153% for the DJIA. Gold really shines in periods of uncertainty and inflation.

If we use the SPDR Gold Shares as a proxy for an investment in gold, we can see that, year-to-date, investing in a gold ETF has been safer for investors than investing in the S&P 500, although both are down.

Source: Google Finance

The message is clear. You need gold especially in times of uncertainty, because that’s when gold outperforms.

How to Invest in Gold

Investing in gold through an exchange-traded fund (ETF) allows you to buy physical gold through a liquid instrument, without the hassle of having to physically possess and secure that gold. Another great option is to invest in a gold individual retirement account (IRA). The top gold IRA companies will allow you to invest in gold for the long-term, so you can plan for your retirement. This is key because gold is a relatively stable asset, and you need that to ensure that if there is a general market fall like we had at the beginning of the pandemic, your retirement savings are not unduly affected. Many people have found that a single adverse stock market event has been enough to set back their retirement plans for over a decade. Frontline depicted how some people who lost their retirement savings in the crash of 1998, had still not been made whole by 2014. Gold is your insurance policy against uncertainty.