Last Updated on January 13, 2024 by Chin Yi Xuan

For the longest time, investors buy gold to preserve wealth as it is thought to be a stable investment.

In fact, when the Malaysian government granted users special withdrawals from EPF (our retirement fund) in the past few years, many Malaysians went on to – you guessed it – buy gold.

Source: RinggitPlus

The question is: Is gold a good investment (it depends)? Is gold really stable (nope) and protects your wealth against inflation (…and nope)?

In this post, let’s debunk a few myths about gold, and why I think most investors would still be better off investing in gold!

RELATED POST: 2 SECRET reasons that move gold price!

Highlights

  • Gold is not a stable investment, and shows little signs that it is a good protection against inflation.
  • That said, gold is a solid diversification from assets like stocks and bonds due to its low correlation with these assets.
  • Holding gold in an investment portfolio helps with psychology as it helps reduce downside impact, and improve recovery time from a drawdown.

Interested? Slide down to learn more about why you need to invest in gold!


2 wrong reasons why people invest in gold:

Reason 1: “Because gold is a stable investment.”

But is it really?

Check out the visual below where we compare the returns of different asset classes for the past 50+ years.

What can we learn from the visual:

  • It is not hard to see that gold is actually pretty volatile over the years compared to bonds and home prices.
  • If you observe closely, you’d also notice that gold tends to swing to the negative territory a lot more times than the S&P500 (US stocks), and Real Estate Investment Trust (REIT).

From this, we can debunk with confidence that gold is definitely not as ‘stable’ as most people assume.

How to invest during high inflation
Source of data: BullionVault

Reason #2: “Because gold protects my wealth against inflation.”

Another common reason why people invest in gold is to protect themselves against inflation.

However, this perception is far from the truth in reality.

Below, check out how gold performed in the past when inflation in the US is over 4%:

From what you can see, buying gold to ‘protect’ your wealth against inflation depends largely on luck – because gold can fluctuate both ways EVEN when inflation is high.

So, what does this tell us?

Essentially, on its own, gold’s performance is hardly impressive and it does not even protect investors well against inflation.

However, you should not dismiss gold because of the reasons above. In fact, when done right, investing in gold can help you sleep well at night – especially when things get tough.


2 REAL reasons why you (still) need to invest in gold:

#1 Low correlation

Generally, gold has a low correlation when compared to major stocks and fixed-income assets.

In other words, this means when stocks or bond prices tumbled in price, gold tends to hold its ground well, or is faster to recover.

2022 is a solid example:

Check out how gold correlates to equities (stocks) and fixed-income assets (eg. bonds) below:

The lower it is to 1.0, the lower gold’s correlation is compared to the particular asset. (Note: As of December 2022)
The lower it is to 1.0, the lower gold’s correlation is compared to the particular asset. (Note: As of December 2022)

#2: Gold as a portfolio diversifier

Why is gold’s low correlation with other assets important?

This is because while gold does not produce impressive returns on its own, it is an excellent risk diversifier in an investment portfolio consisting of stocks and bonds.

Simply put, gold is highly effective in helping to reduce the downside risk of your entire investment portfolio.

Let’s look at an example below:

Scenario: Gold as a portfolio diversifier in a 100% stocks portfolio

In this example, let’s imagine yourself investing in a 100% stocks portfolio against an 80% stocks-20% gold portfolio from 1972 – Jan 2023:

We will invest $500 every month in each of the portfolios and see what happens:

Source: World Gold Council portfolio simulator

What can we infer from the table above?

  • Surprisingly, there is only minimal difference in the annual returns (CAGR) between each portfolio in the long run. (22.68% vs 22.3%)
  • However, having gold in a stock portfolio would help reduce the max drawdown you’d experience by a significant margin! (-50.57% vs -38.74%)

To give you a better perspective, check out how fast your investments would recover in the past 2 stock market crises (2007 – 2008, 2000 – 2002) if you have gold in your portfolio:

Source: World Gold Council portfolio simulator

For instance, in the Global Financial Crisis (2007 – 2009), a 100% stock portfolio would need about 3 years and 1 month to recover, while having 20% gold in the portfolio would take 1 year and 10 months to recover.

As an investor that has gone through a tough year in 2022, I’m sure you’ll know how valuable a 15-month faster recovery means to your confidence and mental health.

In other words, having some gold in your portfolio can help you sleep better at night, especially during difficult times!


3 recommended ways to invest in gold

Below, let me recommend 3 ways to invest in gold without having to store physical gold:

Method 1: Invest in local gold ETF via Rakuten Trade

The TradePlus Shariah Gold Tracker (code: 0828EA) is a Malaysia-listed Exchange-Traded Fund (ETF) that tracks gold price.

This gold ETF is shariah compliant, and is backed by physical gold bars, ensuring that it tracks the price of gold with precision.

TradePlus Shariah Gold Tracker (code: 0828EA) is a Malaysia-listed Exchange-Traded Fund (ETF) that tracks gold price.

At a low annual fee of 0.56% (trustee, management, custody fees), it is one of the most convenient ways for Malaysians to invest in gold without having to store physical gold!

You can start investing in the TradePlus Shariah Gold Tracker (code: 0828EA) via Rakuten Trade.

RELATED: Rakuten Trade long-term review

p.s. You can also invest in US gold ETF (Method 2) via Rakuten Trade as they also offer access to the US stock market!

Method 2: Invest in US gold ETF via Interactive Brokers (IBKR)

You can also invest in gold ETF that is listed in the US, such as the SPDR Gold Shares ETF (ticker: GLD).

GLD is also backed by physical gold so it can reflect the gold price in the closest presicion.

Compared to Malaysia-listed gold ETF, GLD is quoted in USD and has a lower annual estimated fee of 0.4%.

If you prefer to have your gold investments in USD, GLD is the way to go.

You can invest in GLD via Interactive Brokers, my preferred platform to buy global stocks:

READ MORE: Interactive Brokers Long-Term Review

Method 3: Invest in gold ETF via Versa Gold

If opening a stock brokerage account overwhelms you, and you want a simple-to-use platform to buy gold, you can consider checking out Versa Gold from Versa.

With Versa Gold, you are essentially investing in TradePlus Shariah Gold Tracker from Method 1 above, but at a much simpler to use Versa app.

Versa Gold Review

In addition, Versa Gold requires a low minimum investment amount of RM100, which is very beginner-friendly if you want to try investing in gold.

Versa Promo Code - VERSANML4
Get RM10 when you sign up for a Versa account via my promo code

No Money Lah Verdict + Takeaways

  • As an individual asset, gold’s return is not impressive, and it does not protect against inflation.
  • However, thanks to gold’s low correlation with assets like equities and bonds, gold can be a solid diversification in a portfolio.

In my opinion, investing in gold is a form of insurance for a portfolio. While assets like stocks may tumble in fear or market uncertainties, investors tend to flock to gold in such times.

In a way, owning gold as part of your portfolio keeps you sane in tough market conditions.

So what do you think? Would you consider investing in gold with this new perspective from now on?

Feel free to share with me your thoughts in the comment section below!


Disclaimers

Any of the information above is produced with my own best effort and research. 

This post is produced purely for sharing purposes and should not be taken as a buy/sell recommendation. Past return is not indicative of future performance. Please seek advice from a licensed financial planner before making any financial decisions.

This post may contain promo code(s) that afford No Money Lah a small amount of commission (and help support the blog) should you sign up through my referral link.