The stock market has long been one the most popular ways for investors to make money, and a longstanding rival to gold investment. While markets are strong, traders have the potential to make significant gains, but the risks are higher too. Gold offers a number of benefits vs stocks and shares:
In the UK, the FTSE 100 is one of the most popular listings to invest in. The FTSE 100 – known as the ‘Footsie’ – is a share index owned by the London Stock Exchange. It lists the top 100 companies by total market value.
One of the unique benefits to stocks vs gold are dividends, which can offer a (somewhat) regular income on top of the share value. A dividend is an optional bonus paid to shareholders on an annual, half-yearly, or quarterly basis. The amount can vary based on company performance, and the amount of stocks held. It should be noted however that dividends are not guaranteed; when profits are down, companies may decide not to pay any dividend (and stock value will probably be dropping at the same time).
Gold vs FTSE 100
The chart below demonstrates how a gold investment would have performed against an investment in the FTSE 100 index. For clarity, we have used the FTSE 100 index value compared against the LBMA gold price in the same period.
As the chart shows, gold has significantly outperformed the FTSE 100 average. In the 24 years shown - 2000 to 2024 - the FTSE 100 index value went from 6,364 to 7,461. This represents an increase of just 17%, and at its highest the index gained only 23% and at its worst lost 43%. Compared to gold which started at £170 per ounce, and has now hit £1,600 per ounce, gold has gained a much more impressive 850% in value in the same period, and at no time was lower than the first figure.
In terms of monetary value, if you invested £10,000 in gold at the turn of the millennium, it would have been worth over £90,000 by 2024. The same £10,000 placed into the FTSE 100 index wouldn’t have even reached £15,000 in the same period, and would have lost money depending when you chose to cash out. The Index of course is just an average, individual companies could perform much better, but could also perform worse.
The biggest fear for investors in the stock market is of course the risk of financial crashes. As seen during the 2008/09 financial crisis, the stock market is at risk of losing money. This can be sudden, as the stock market reacts quickly and with large movements. The old adage of "the higher the climb, the harder the fall" seems appropriate here - the present highs in the US markets, driven by tech stocks, could result in a repeat of the Dot Com Bubble bursting in the early 2000s. Even today in 2024, much of the stock market growth in the US is attributed to the 'Magnificent Seven', a collection of seven companies such as Microsoft and Apple who alone are helping to prop up and inflate US stock markets.
Gold is often seen as a ‘safe-haven asset’ as discussed in our
‘Why Invest in Gold’
page. As a result, when economic uncertainty causes stock prices to drop, increased demand sees gold perform well. This means gold can not only protect your wealth against the risks of the stock market, but potentially help it grow during uncertainty.
Gold or Stocks?
Like many investments, opportunity is key when buying gold or stocks. If you buy at the right time, and sell at the right time, then money can be made. Between 2016 and 2017, the FTSE 100 has seen it’s value increase, but the UK economy has struggled since the pandemic of 2020, limiting the FTSE to mild growth at best. High inflation and higher interest rates have stymied growth further and the UK could face recession in 2024 and beyond.
A smart investor will ultimately seek to diversify their portfolio, spreading their money across multiple assets. Having some money invested in stocks can offer short-term opportunity, but by adding gold to your portfolio you can reduce the risks inherent to shares, and potentially see your investment grow as a result.
