Ways that Gold Beats Paper Savings
When people want to build a savings for the first time, they often think that the primary method of doing so is to put it into a traditional savings account. Sure, it may accumulate interest, but that interest rate is, on average, just 0.06% PY. That might sound good, but consider that inflation often depreciates wealth significantly quicker.
Say you put $1,000 in savings for 5 years. With that $1,000 at the time of deposit, you could buy ten drones at $100 each. Next year, after inflation raises prices, you have the purchasing power of what would be the equivalent of just $1,000.60 after the APY of 0.06%.
The problem is, with inflation devaluing that $1,000 every year with an average of 2.47%, the purchasing power of that money in savings has decreased. The first year, you lose $2.47 in purchasing power, while one year of interest will only grow your money up to $1,000.60. That means you’ve lost $1.87 in purchasing power. You may still have $1,000, but those drones now cost $102.47, which means you can only afford to buy nine instead of ten.
While paper savings guarantees that your money will be there when you need it, it does little more than lose purchasing power while it sits. There are ways to protect your money from losing value and one of the most effective ways to store and maintain wealth to hedge against inflation is buying gold bullion or opening a gold IRA account. It beats out paper savings in several ways.
Gold is Limited
The principles of supply and demand determine that when something is limited in supply but high in demand, the price goes up. People will pay more to get a share of the supply. This is the case for goods. Gold, while an asset and an investment, is a good way to maintain wealth independently of a currency. You can go out and purchase or sell gold depending on the current market value just about anywhere in the world. It is inherently useful independently of its value as well: It is used in jewelry, technology, and more. This means that even if its monetary value were to decrease, it will still be in demand for other reasons, which can help stabilize the price.
This means that gold is a limited-supply non-cash asset, much like oil and real estate. Currency is not. As has been proven, the government can print more money, which can cause it to lose more value. Gold, because it is limited, can’t lose the value that it has. Gold’s value is not determined by any central government and instead follows the principles of supply and demand.
Gold is Valuable Internationally
While the US Dollar acts as a de facto international cash-based currency, this may not be the case forever, and it does not mean you can spend US dollars anywhere in the world. It must be converted. Gold is valuable worldwide and not limited by country borders in the same way. Think of American Gold Eagle coins. While legal US tender, it still has the value of gold anywhere in the world.
Gold Offers Further Portfolio Diversification
Any good investor will tell you that diversification is crucial to success. It helps to mitigate risk and gold acts as an investment rather than a traditional savings. Gold is a particularly safe investment because it is independently valuable due to its limited supply and vast uses. Additionally, as cash loses value, gold, as a good, tends to grow in value instead.
Gold is Independent of the Banking System
While not likely, a bank collapse can, and has happened. There have been currencies that have become so hyperinflated that the notes are practically useless. If the US dollar becomes completely worthless, any gold accumulated will still have inherent value, independently of currencies and banking systems.
Gold Appreciates Much Faster than Cash Depreciates
Finally, consider that gold typically appreciates much quicker than cash can depreciate. On average, gold has an appreciation rate of 13.4%. This edges out the average stock market return of about 10% per year and crushes any savings account offers of 0.06% per year. This means that gold can be one of the most effective ways to independently gather and foster the growth of wealth.
The Bottom Line
Accumulating wealth is important for a number of reasons, but as it currently stands, leaving that wealth in a savings account may as well be burning it away, little by little while inflation depreciates the value. By investing your wealth in gold, you get a real, tangible asset that has independent value with significantly more growth potential than a paper savings account.