Precious Metals vs Stocks and Bonds: Which is a Better Investment?

As the pandemic and the recession continue to linger, investors are considering plenty of unconventional options, and they’re weighing them carefully as they do.

That applies literally to precious metal investments, which are getting a lot of play as a possible investment alternatives to stocks and bonds.

There are plenty of opinions out there about all this, but not nearly as many facts. So let’s do a rundown of what some of the specifics are when it comes to these two types of investment, and we’ll also give you some performance parameters as a guide.

The Investment Products

The first thing you need to know is the difference between precious metals and stocks and bonds. This may seem too obvious for words, but you do need to know the specifics when it comes to how they’re defined within the investment community.

Simply put, stocks are equities, while precious metals are commodities. Buying equities means the purchaser owns a share of the company the stock represents, while buying a commodity means the buyer owns a tangible, physical product.

To convert that into investment language, stocks make many when those companies increase profits and grow, while commodities like precious metals operate according to the rules of supply and demand, i.e., buyers make money when demand increases and lose money when demand goes down or the supply surges to the point where value is lowered.

Conventional wisdom says that stocks are a better investment in a bull market, while precious metals do better in a down economy. But what do the performance numbers actually say?

Precious Metals vs Stocks: By the Numbers

It’s easy to test the flexibility of statistics when it comes to evaluating precious metals vs stocks and bonds, so to do this fairly we’ll go back just over 20 years.

If you bought $20,000 work of stock in 2000, you probably saw a return on investment of approximately 10 percent over the course of ten years.

If you put that same amount amount of money into gold or silver bullion, you probably made around $100K, which means your ROI was somewhere in the neighborhood of 5:1.

So what’s the explanation for this big difference? There are several, actually. Due to the havoc wreaked by the pandemic and the concomitant issues in the supply chain, economic issues have forced governments to pump money into their economies, which of course devalues that money along with the stocks that rely on stability to maintain their worth.

That in turn increases the value of precious metals like gold and silver, largely because investors perceive these particular commodities as being more secure than their money-based counterparts.

The other performance issue that comes into play with stocks is foundational changes in the way they’re traded. Algorithms and computerized trading have made stocks much more volatile, with large swings occurring all the time, sometimes within a single day.

These algorithms and programs can still be used effectively by savvy investors, of course, but it takes a considerable amount of time to learn the ins and outs of how they work.

So What’s the Best Choice?

Given these trends, does that mean it’s smart to get out of stocks completely and pursue a short-term investment strategy of buying precious metals?

The short answer to that is “no.” The best goal in any investment climate is to strive for a balanced portfolio that takes into account a combination of trends, performance records and individual needs.

It should also be pointed out that some investors are pursuing a completely different conservative strategy to balance their portfolios and attain stability. Simply put, they’re earning their money the old-fashioned way—by buying T-bills.

One of the biggest reasons for buying Treasure bonds is the availability of Treasury inflation-protected securities (TIPS), which provide a rate of return that’s guaranteed by the government itself. And given that inflation is expected to continue well into 2022, they now represent a solid short-term investment, even if their overall return is lower than that of most other investment vehicles.

There are other factors that come into play, of course. Short-term swings are part of the equation, and while some of these aren’t hard to predict, very few investors hit the bullseye every time.

The best option is nearly always to factor in your individual needs, then strive for portfolio balance in the way that makes the most sense for you.