Let’s take a look at the pros and cons of investing in gold first of all. From liquidity to income generation, we’ll cover all the bases so you’re able to make an informed decision on whether gold investment is right for you.
Gold is a highly liquid asset, which means it can be bought and sold in various forms, including bullion, coins, and exchange traded funds (EFTs). This liquidity provides you with the flexibility to enter and exit gold investments quickly, minimising your transaction costs in the process.
Historically, gold has always managed to maintain its value over time, which makes it an effective inflation hedge. Put simply, this means that during times of inflation, the purchasing power of fiat currencies tends to decline, but the value of gold rises, preserving your wealth.
Gold also has a low correlation with other asset classes, such as stocks and bonds. As such, adding gold to a diversified investment portfolio can reduce overall portfolio risk and enhance your long term investment returns by offsetting losses during market downturns.
During times of market uncertainty and geopolitical uncertainty, gold is often viewed as a safe haven asset. This basically means that when financial markets are volatile or geopolitical tensions escalate, investors tend to turn to gold as a store of value, which, in turn, drives its price up.
Another benefit gold brings to the table is its recognition and acceptance as a form of currency and store of value all over the globe. This also makes it one of the most attractive investment options for international diversification and protection against currency devaluation.
Unlike stocks, bonds, or digital assets, gold is a tangible asset. This means that you can physically hold gold and store it, which provides a sense of security and ownership many investors find appealing.
While gold doesn’t generate income in the same way as dividend-paying stocks or interest-bearing bonds, it has the potential for capital appreciation over the long term. This is due to the demand for gold in jewellery, industrial use, and investment demand.
Unlike commercial property investment, gold does not generate any income. Instead, its value relies solely on price appreciation, which can limit its appeal if you’re looking for regular income from an investment.
Gold prices can also be highly volatile and can experience significant fluctuations in short periods. This can lead to unpredictable investment returns, making it a bad choice for investors with a lower risk tolerance.
Physical gold holdings require storage, which can incur additional costs such as renting a safe deposit box or purchasing a secure safe. Similarly, you’ll need to insure the gold against theft or damage, which, again, adds to the overall expense of ownership.
While gold has been historically valued for its scarcity and aesthetic appeal, it doesn’t have any intrinsic value beyond industrial applications and perceived worth. Its value is primarily driven by market sentiment and demand, which can be influenced by several factors, including economic conditions and geopolitical events.
As you can see, investing in gold comes with some good benefits but also has plenty of drawbacks. But what about investing in commercial property? Let’s take a look.
Commercial properties, such as office buildings, retail centres, and industrial warehouses, are capable of generating stable and predictable rental income. You’re also able to grow this income over time through long-term lease agreements with built-in rent escalations.
Another advantage of investing in commercial property compared to gold is that you can unlock several tax benefits, including depreciation deductions, mortgage interest deductions, and the ability to defer capital gains tax through like-kind exchanges.
Commercial real estate investments have typically demonstrated long-term appreciation potential, too, and while short-term market fluctuations may occur, well-located and well-managed commercial properties have the potential to appreciate in value over time. This, in turn, provides you with capital appreciation alongside steady rental income.
You’re also able to enhance the value of a commercial property through certain strategies, such as renovation or redevelopment. This gives you the potential to increase occupancy rates or renegotiate lease terms, increasing your chances of being able to generate substantial returns.
The value of commercial property, as well as the rental income it generates, tends to increase in line with inflation, which makes investing in commercial property an effective hedge against inflation.
Just like gold, commercial property is also a tangible investment that you can physically see and touch. The difference, however, is that commercial real estate investments can be improved over time to add even more value and generate more income.
One of the biggest disadvantages of commercial property investment is that it requires a significant upfront payment compared to some other investment options. You’ll need to think not only about the purchase price of the property but also about property taxes, insurance, maintenance costs, and improvement expenses, all of which can add up to a substantial sum of money.
While commercial properties are capable of generating rental income, there is also a vacancy risk between tenants, which can disrupt cash flow. This is especially true for prolonged vacancy periods, which can significantly impact your returns.
Likewise, the financial stability and creditworthiness of tenants can affect rental income and the general performance of property investment. For example, a default by a major tenant can lead to a huge amount of rental income loss and, in turn, increase the risk of financial instability.
Managing commercial property also requires active involvement in leasing, maintenance, tenant relations, and finances. This is a pretty specialised field, so you’ll likely have to hire a property management company, which will come with costs.
