These days, consumers are investing in gold in an attempt to make money and maintain its value. For years, investors have diversified their portfolios by buying stock in precious metals; however, these days, many people are purchasing bullion and coins to insure against potential economic problems that might decrease the value of American currency. Recent television and online advertisements have begun pushing this tactic to the delight of companies that deal in coins and bullion bars; however, according to one financial expert, there's less value in this type of investment strategy.
Warren Buffett Speaks Out
According to Warren Buffett, investing in gold is pure speculation and should not be a part of any portfolio. In his yearly letter issued to Berkshire Hathaway shareholders, the American business magnate said precious metals are a poor investment because they don't do anything once you own them. Because gold cannot produce revenue, it is difficult to price, a fact which Buffett says reduces it to nothing more than a speculative vehicle.
Better Investment Opportunities
According to Buffett, when investors are trying to determine how to make money with their investment strategy, they should consider the value of owning stock in successful companies. Unlike precious metals which offer little prospect of growth, companies are able to collect revenue from sales, rent collections and so one, while providing dividends along the way.
Although Buffett says people tend to be driven toward rare metals during times of economic uncertainty; he says he's confident that investing in gold is an inferior strategy to placing money in companies, which are easier to evaluate and have the potential for growth.
Is there a Reason to Buy Gold?
Although Buffett paints a convincing picture, his argument doesn't necessarily mean that there is no good reason to invest in precious metals. Although it may make more sense for investors to put money in companies because they have a higher upside; they also have a much deeper downside, with some going bankrupt and others employing misguided and deceitful business practices that can surprise stockholders with substantial losses.
In the end, rare metals may prove valuable to those who like to be protected against all eventualities. That said, Buffett may also be correct when he says that this strategy isn't the best way to make money. Additionally, according to the Federal Trade Commission, rare coins and bullion bars aren't a safe bet against potential economic instability; and the recent GoldLine scam points out just how dangerous the process can be for those who aren't knowledgeable investors.
If you're interested in a more secure portfolio, this investment strategy may make sense; however, if you've been pushed to buy rare coins or bars because you're scared of widespread economic collapse, it probably doesn't. In the end, before you buy, think about what you're trying to accomplish and read the FTC's advice on how to buy gold.