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Young investors have time on their side. When used responsibly, time in the market (as opposed to timing the market) is an investor's greatest asset. This is especially true for gold investors, since the underlying asset has appreciated over +570% in inflation-adjusted terms since the interwar period.
The benefits of investing in gold for young people are potentially countless. Although it's often not sought after as a growth asset, gold can provide stability, portfolio insurance, and strategic wealth preservation if used as a long-term buy-and-hold. In this article, we’ll go over the various reasons why young investors would be remiss not to invest in gold.
1. Gold Can Appreciate on a Tax-Free Basis
If held within a Roth IRA, gold bullion can appreciate in value without having to pay capital gains taxes on the asset's appreciation upon withdrawal. Therefore, an ounce of gold purchased in one's 20s or 30s can provide a ton of value later in life when the asset has presumably appreciated significantly—all without having to pay a dime to Uncle Sam.
There are plenty of reasons to open a Roth IRA while you're young, and adding gold bullion and other precious metals is one of the best things you can do with this type of account. If held outside of a Roth IRA or self-directed Roth 401(k), the appreciated value of the asset would be taxable as capital gains (i.e., 15-20%) or as ordinary income (i.e., up to 37%).
Don’t let your gains squander under the thumb of the IRS. The Roth IRA is one of the most valuable tools we have for keeping our tax burden low, and self-directed IRAs allow for a wide variety of alternative assets (including gold) to be held within the account.
2. Gold is a Sound Form of Money
Whereas fiat money such as dollars can be reprinted ad infinitum by central banks, there’s only a finite global supply of gold. Therefore, the price of gold cannot be manipulated by bad actors or intentionally held to artificially high or low prices the same way that dollars can. This is why gold is widely considered to be a sound form of money.
As one of the best investments for young adults, gold can serve as a medium of exchange. In the event that dollars no longer hold value due to a banking crisis, global conflict, or catastrophic disaster, gold assets may be useful for bartering for and acquiring essential goods.
The historical record confirms that gold is a reliable form of money. Gold as money dates back millennia, to about 600 BCE when King Croesus of Lydia (in modern-day Turkey) first decreed that gold coinage would be Kingdom's official currency. Modern societies, including the United States, used currencies convertible into equivalent values of gold until recently—it was only August 1971 when President Nixon ended the Gold Standard in the U.S.
3. Gold is Safe From Theft and Seizure
Gold investing in one's 20s or 30s is a relatively safe play compared to investing in paper assets. While cash, index funds, ETFs, and other non-tangible assets can be electronically seized by authorities or even stolen by cybercriminals, gold is stored in highly secure vaults. The likelihood of having one's gold seized or stolen is much less probable than having one's digital assets or banked cash compromised.
4. Privacy Benefits and Anonymity
Gold leaves no trace. Whereas cash and digitized assets—even cryptocurrency—have a paper trail that authorities (or even the public) can view at their discretion, gold is private and anonymous. If you're a young investor who wants to keep their financial record confidential, gold and other tangible assets can help you achieve that goal.
If you decide to hold gold within a tax-advantaged retirement savings account, such as an IRA or 401(k), you must keep your gold stored by an IRS-approved custodian. These custodians ensure that every gold deposit is fully insured and kept in guarded vaults, such that security threats are minimized. Therefore, you don't need to worry about personally guarding your gold reserves if you decide to invest in gold.
5. Offers Portfolio Stability
We're often asked, “Should young people invest in gold?” The answer, virtually always, is yes. Young investors have a lot of financial uncertainty in their lives, especially regarding job stability, equity market volatility, and the housing market.
Fortunately, diversifying with gold assets provides, at least in part, an answer to market instability. Below, we've listed five notable periods of market instability in recent history, with the S&P 500 index performance contrasted side-by-side with the spot price of gold:
- Black Monday 1987: -22.6% (S&P), +4.2% (Gold)
- Iraq-Kuwait War 1990: -21% (S&P), +11.1% (Gold)
- Dot Com Crash (2000-02): -38.5% (S&P), +18% (Gold)
- Financial Crisis (2007-10): -20.1% (S&P), +78.9% (Gold)
- Coronavirus Crash (2019-20): -19.8% (S&P), +7.6% (Gold)
Based on the historical record, not only does gold provide a hedge against recessions and equity market volatility, but it can even appreciate during negative economy-wide events. The fact that the yellow metal can increase in value is one of the greatest benefits of investing in gold for young people.
6. Gold Offers Versatility
Although most gold investors insist on owning physical precious metals, gold is an extremely versatile asset that can take many forms. Depending on one's liquidity goals, young investors can gain exposure to the metal by purchasing:
- Gold jewelry
- Physical metal bullion
- Individual gold mining stocks
- Gold mining ETFs
- Gold coinage
Although these gold investment options are available to all investors, it should be noted that collectibles such as jewelry or coins cannot be included in IRAs or 401(k)s. When it comes to gold, the best type of investment for a young person is metal bullion. For more information about the benefits of bullion, check out our article on physical gold vs. paper gold.
7. Gold Can Hedge Against Inflation
It's often argued that gold is a hedge against inflation and the devaluation of the U.S. dollar. While this claim is now sometimes disputed, there is ample mathematical evidence that the money supply has a strong, time-varying relationship with the price of gold.
With the end of the Bretton Woods system in 1971 and the introduction of purely fiat currency (i.e., dollars unpegged to gold), gold has since performed relatively well during periods of decline in the dollar's value.
In particular, the stagflation era during the 1970s saw the yellow metal skyrocket from $100 to about $650 per ounce by 1980. All the while, the U.S. dollar underwent some of the worst periods of inflation in history, peaking around the 20% mark and averaging about 6.8% throughout the decade (i.e., over twice the historical average).
Gold investments for young people can provide a lifetime of stability against inflation, or at least offer a degree of protection against it. If you're young, you're naturally going to find yourself vulnerable to inflation over the next several decades of investing. Hedging with gold now, while you're young, can offer long-term portfolio stability during inflationary periods.
8. Assurance During Geopolitical Tensions
A landmark scientific study published in March 2021 measured the Geopolitical Risk Index (GRI) against the price of gold to discover whether a long-assumed relationship between global conflict and gold prices actually exists. The findings indicated that, indeed, gold has shown demonstrable safe-haven characteristics during “extreme political events” between January 1985 and December 2018, the period in which the study was held.
Gold is an excellent diversifier amid periods of global tension. For instance, gold outperformed the stock market during recent geopolitical flare-ups, including:
- March 2020 OPEC+ crude oil price collapse
- January 2020 U.S.-Iran targeted airstrike
- March 2020 COVID-19 coronavirus crash
9. Gold Offers Diversification Beyond Stocks and Bonds
Generally, the gold mining sector has virtually no relationship (+0.05) with the overall performance of the stock market. This extremely low correlation suggests that the gold asset class as a whole and the equities market share little relation, something which is borne out by the evidence since the beginning of the 20th century.
Whereas the stock market shares a relationship with interest rates, real estate, and other assets, there's no relation between it and gold. Therefore, for a young investor with a long time horizon, reserving a portion of their portfolio in gold could help soften the blow during downcycle events in the stock market and its various correlates.
Gold IRAs: An Advantage At Any Age
The benefits of investing in gold for young people have been well demonstrated for millennia. As a reliable and universal store of value, gold can help provide lifelong stability for people both young and old, while also offering critical cost-savings for those who hold gold in a self-directed IRA.
Before you get started with a gold IRA, make sure you do your due diligence. First, speak with a financial advisor and, for more information, check out our guide to the Pros and Cons of Gold IRAs.