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I’ve had a few of you ask recently about the surge in gold prices and whether it’s time to consider adding some to your portfolio. It’s a fair question, especially with the headlines focusing on gold’s recent performance. However, I’d like to share why I believe that sticking with equities is a more reliable path to achieving your long-term financial goals.
Gold is often seen as a “safe haven” during times of uncertainty. But it’s important to understand that gold is a commodity—it doesn’t generate income, it doesn’t grow, and its value is largely driven by market sentiment. When people are anxious, demand for gold can push its price up. But that’s all it is: a price movement based on fear, not on the creation of value.
Equities, on the other hand, represent ownership in companies. When you invest in shares, you’re investing in businesses that work to grow, innovate, and generate profits. The value of your equity investments increases as these companies expand and succeed. And unlike gold, equities can provide income through dividends, which can then be reinvested to accelerate growth.
One of the key principles I advocate for at Lexington Wealth is the power of compounding. Compounding is what happens when the returns on your investments start generating their own returns—a snowball effect that can lead to significant wealth accumulation over time.
Let’s put this into perspective. If you invest £10,000 in a diversified equity portfolio and it grows at an average annual rate of 7%, in 10 years, your investment could be worth around £19,672. This isn’t just due to the original growth, but because the returns you earned in the early years were reinvested and grew as well. That’s the power of compounding.
Contrast this with gold. Even if the price of gold rises, it doesn’t compound in the same way. It doesn’t generate dividends, and it doesn’t produce ongoing returns that can be reinvested. It’s simply a static asset, whose value depends on what someone else is willing to pay for it at a given moment.
1. Growth from Profitability: The value of equities is driven by the success of the companies you invest in. As these businesses grow and become more profitable, your investments appreciate.
2. Dividend Income: Many companies share their profits with shareholders through dividends, providing you with a steady income stream that can be reinvested to enhance your portfolio’s growth.
3. An Effective Inflation Hedge: Over time, equities tend to outperform inflation because companies can adapt, raise prices, and grow earnings. Gold’s reputation as an inflation hedge is often overstated, and it doesn’t offer the same long-term growth potential as equities.
4. Historical Performance: If we look back over decades, equities have consistently delivered higher returns than gold. While there may be periods when gold outperforms, these are usually short-lived and driven by specific economic events.
In my experience, the best way to build and preserve wealth is to focus on long-term growth, not short-term market movements. Equity investing, driven by the profitability and growth of companies, has a proven track record. By staying invested in equities, we can leverage the power of compounding to grow your wealth and achieve your financial aspirations.
While gold may have its moments, it doesn’t offer the same growth potential as equities. The real driver of wealth creation is the profits that businesses generate and the compounding of those profits over time. That’s why I believe that a focus on equity investments is the best way to secure your financial future.
As always, I’m here to discuss your investment strategy and answer any questions you might have. Please don’t hesitate to get in touch.
Warmest regards,
Warren Shute CFP
