Gold Is a Terrible Investment
Gold doesn't pay dividends. It underperforms stocks. The IRS taxes it at 28%. So why do I keep buying it?
Gold is a terrible investment. I own some, I’ve spent real money on it, and I’m telling you — as an investment — it’s pretty bad.
Before you leave an angry comment, hear me out. I’m not saying you shouldn’t own gold. I’m saying that if you’re buying gold because you think it’s going to make you rich, you’re doing it wrong and you’re setting yourself up to be disappointed.
What Makes a Good Investment
A good investment does one or both of two things: it generates income, or it grows consistently over time. Stocks pay dividends. Real estate gives you rental income. Bonds pay interest. A savings account gives you something. They’re all putting money back in your pocket while you hold them.
Gold doesn’t do any of that. It just sits there. No cash flow, no compounding. You buy an ounce today and in 10 years you still have an ounce.
If you look at long-term returns, gold has historically underperformed the stock market by a wide margin. The S&P 500 has averaged around 10% annually over the long run. Gold has been closer to 7–8%, and that includes the massive run-up we’ve seen recently. Take out the last few years and the number is lower.
Gold doesn’t even keep up with the stock market during good times. When the economy is healthy and growing, gold usually goes sideways or drops. It sat basically flat for 20 years between the early ’80s and the early 2000s. Two decades of nothing.
On top of that, the IRS taxes gold at 28% as a collectible — higher than long-term capital gains on stocks. So even when gold does go up, the government takes a bigger bite than they would with your equity gains.
As an investment, gold is not great.
So Why Do I Own It?
I don’t own gold as an investment. I own it as insurance. And that distinction changes everything.
Think about your car insurance. You pay for it every month. You don’t expect it to make you rich. You’re not checking your auto insurance portfolio hoping it went up 12% this quarter. You have it because if something really bad happens, it’s there.
That’s gold. It’s the thing you own when everything else goes wrong — when the dollar weakens significantly, when there’s a financial crisis, when inflation gets out of control. That’s when gold shows up and does its job.
And it’s been doing that job for a long time. An ounce of gold has roughly bought a quality suit of clothes for centuries. It holds purchasing power across time in a way that no currency on earth ever has. That’s not nothing. But it’s also not the same thing as being a good investment.
How Much Is the Right Amount
My answer is 5% of net worth — that includes silver. Not 10%, not 20%.
There are people in the stacking community who are 30%, 40%, 50% in metals. Some are basically all in. At that level, you’re not hedging. You’re betting that the financial system is going to collapse and gold is going to be the only thing that matters. Maybe you’re right — but probably you’re not. And in the meantime, you’re missing out on actual compounding from productive assets.
5% gives me peace of mind without meaningfully dragging on returns. If everything goes sideways, I have some real tangible assets. If it doesn’t — which is the much more likely scenario — my index funds did the heavy lifting and the gold just sat there. That’s exactly what insurance is supposed to do.
You wouldn’t spend 50% of your income on car insurance. You spend what you need to be covered and put the rest to work.
Who This Is For
If you’ve already got your financial house in order — maxing retirement accounts, no high-interest debt, emergency fund in place — and you want a small allocation to something that’s preserved purchasing power for thousands of years, gold makes sense as one piece of a diversified plan.
If you’re buying gold because you think it’s going to $10,000 and you’re going to retire off it, or you’re putting 30% of your next paycheck into metals because you think the dollar is going to collapse next Tuesday — pump the brakes.
The precious metals community sometimes lets fear drive the bus when math should be driving it. Gold is one tool in the toolbox, and it’s a good tool for a specific job. It’s just not the whole toolbox.
Addressing the Common Arguments
Gold is up 80% the last few years. The S&P 500 is also up a lot. One good stretch doesn’t change the long-term picture. Gold has also had decades where it did absolutely nothing.
The dollar is losing value. It is, and has been for 100 years. People who invested in equities over that same period got substantially wealthier anyway. Inflation is a real concern, but gold isn’t the only hedge. Real estate, TIPS, and even stocks have historically outpaced inflation.
What about when the whole system collapses? If the entire global financial system collapses, an ounce of gold is not the thing that saves you. You’ll need food, water, skills, and community. Gold might help in a partial disruption — and that’s probably the realistic worst case — but the full doomsday scenario is a different problem entirely.
So: is gold a terrible investment? Honestly, yeah, it kind of is. Doesn’t generate income, doesn’t pay a dividend, lags stocks over the long run, and the IRS taxes it at 28%.
But is gold worth owning? Absolutely — just not for the reasons most people think. The mistake is treating it like an investment. It’s insurance. Size it like insurance: small enough that it doesn’t hurt your returns, big enough that it matters if you need it.