Stock Market Vs Gold: Which One is Better Option for Investment?
Deciding whether to invest in the stock market or gold can be a tedious task for many people. While a few investors prefer investing in gold above all other investment options, some people choose stock as the way to attain long-term growth as well as wealth. What is the right option for you is basically depends on your personal investment goals, lifestyle preferences, personality, and more.
Traditional speaking, people in the UAE have been investing in physical assets. But now these days, we noticed a gradual shift to investing in financial assets. When comparing between investing in the stock market and gold, we need to consider a few important aspects.
When we talk about investing in gold, the investors invest their hard-earned money when the prices are low and hold them until the market prices rise to their expected levels. While investing in the stock market, generally investors invest their money when the valuations are high and during the correction phase, the investors don’t wait till the market recovers. Hence, they end up suffering losses by selling the stocks at a low rate.
Stocks Vs Gold
Investment in Stocks
When you purchase shares of stock, meaning that you’re purchasing a piece of an organization. For instance, if any organization has 1,000,000 shares outstanding and you have purchased 10,000 shares that simply mean you own 1 percent of that organization.
As the value of the organization’s share rises, the value of your stock also rises. The organization’s board of directors, who have been elected by stack holders just like you in order to observe the management, finally decides how much percentage of the profit every year gets “reinvested in expansion” and how much percentage of the profit gets “paid out as cash dividends”.
Investment in Gold
When you invest in gold, you are making a physical investment by buying gold coins or gold bullion. Gold is considered as most of the preferred investments in UAE, especially in Dubai. High liquidity & inflation-beating features are its strong pillars, not to mention prestige, charm, and so many other things. Well, there are several phases come when the market confronts a fall in gold rates, but the lower market price of gold won’t last for long and sooner or later the gold rates increase significantly. In addition to this, purchasing and selling this precious metal is a very plain-sailing task. Since it is a liquid asset, it can easily be encashed at any point in time with no formalities. That’s what makes it a safe and profitable investment.
Why Invest in the Stock Market?
A stock market considered as a great investment option due to the following reasons:
- Longevity: Many studies have proved that irrespective of all crashes, purchasing stocks, reinvesting the dividends and holding them for a long time helps in creating a strong wealth. No other thing, in the form of other asset classes can beat the business ownership and when you invest your hard-earned money in the stock market on buying the company’s shares, you are purchasing a piece of that company.
- Dividends: High-quality stocks not only help in increasing your profit year by year but also help in increasing your cash dividends. Meaning that you will get bigger checks in the mail as the organization’s earning rises. And if you hold onto your stocks in the long term and reinvest your dividends, your wealth will grow after few years significantly.
- Minimal Work: Dissimilar to running a small company, owning a piece of the company via shares of stock does not require you to do any kind of work on your part (except researching each organization/business to assess if it’s a sound investment).
- Liquidity: Stocks are liquid. During regular market hours, you can sell out your whole position several times in just a few seconds.
- Borrowing: Borrowing against the stock is quite easier. If your broker has given approval for margin borrowing (generally, it requires you to fill out a form), it is simple as anything. If, in case, the fund is not there, a debt is generated against your stocks and you pay some interest charges on it which is usually fairly low.
Why Invest in Gold?
Following are some of the key reasons why most of the people prefer investing their hard-earned money in gold over other investment options:
- Hedge against Inflation: This precious metal has proven to be an amazing hedge against inflation due to the rate of gold tends to increase with the increase in the cost of living.
- Holds Great Value: Dissimilar to paper currency, this yellow metal has maintained its great value throughout the decades. People in the UAE treasure this metal for ages passing it from one generation to other in order to maintain their wealth.
- Diversified Investment Portfolio: The main aim of a diversified investment portfolio is basically to find out investment options which are not related to one another. This yellow metal has a historically negative correlation with other investments such as mutual funds and stocks. Therefore, it turns out to be a good diversification financial instrument in your investment portfolio.
- Portability and liquidity: Gold is far more liquid than stocks. Gold investments mainly gold bullions and gold coins are ideal since they are portable as well as highly liquid investments. One can carry it anywhere in the world and sell it within a matter of a few minutes only.
- No carrying & Maintenance Costs: Gold does not require maintenance and you can simply keep it in a locker. In addition to this, this yellow metal is value dense. You can carry thousands of dirhams of gold in your home without paying any carrying cost.
In A Nutshell
So, which will be a better investment option among the stock market and gold solely depends on the type of investment portfolio you are basically trying out to build. An apt investment portfolio is the one wherein you can easily find out the balance between risk & return for not only the near future but also in the long run. However, it is not suggested to invest all your money in one investment vehicle. Just diversify your investments to create a strong wealth in the long-term.