Please ensure Javascript is enabled for purposes of website accessibility

Why Buying Gold Won’t Save You from the Zombie Apocalypse

By Motley Fool Staff – Jan 17, 2016 at 12:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite any advice you might have heard to the contrary, gold bullion is far from a good investment, even if the world is coming to an end.

The idea of having a hedge against the end of the world and the collapse of our financial institutions might be alluring. But actually, buying and storing significant amounts of gold bullion won't do you any good in that unlikely event, despite any advice you might have heard to the contrary.

In this video segment, Motley Fool analyst Gaby Lapera and senior banking specialist John Maxfield explain why, what you should be thinking about instead when you invest your money, and what assets you should actually stock up on in the event of an apocalypse.

A full transcript follows the video.

 

This podcast was recorded on Dec. 21, 2015.

Gaby Lapera: Worst advice No. 2 -- it's: "Buy gold." And I'm not talking about stock in gold, I'm talking about gold bullion. I dated this guy who had these crazy friends, and his friend's dad was an immigrant from Eastern Europe, so what he did was, he bought all of his savings, he would put it into gold bullion. He had the secret bunker somewhere out in the woods of Massachusetts, where he had all his gold bullion stored. And as far as I know, he's continuing to do that, because he's still working. And that's just not really a great idea. It's not a super liquid asset, and the price of gold fluctuates so much, that's kind of insane. What do you think, Maxfield?

John Maxfield: Well, the first thing I think is that I want to go to Massachusetts and start digging around in the woods. That's amazing! But other than that ... here's how I think about gold, and this is how I would recommend that investors think about gold, or anyone who's thinking about buying gold for any type of investing purposes. As a general rule, investing in gold is a bad idea, and here's why.

When you invest, your biggest ally is compound returns, because that grows the size of your returns without you doing anything on an annual basis, and pretty soon, your small returns of 1% or 2% a year turn into 50%, 60% a year on your original basis. But in order to tap into compound returns, you've got to be invested into an income-earning asset. And the problem with gold is it doesn't own any assets. So, your biggest ally as an investor of compound returns isn't present when you're buying gold. So, that is the main reason that, as a general rule, you should avoid gold as an investment.

But there are three exceptions to this rule. The first is in times of stress and fear in the market, when money flees to safety. We saw this during the financial crisis, when the price of gold per ounce on an inflation-adjusted basis went from $350 an ounce all the way up to $2000 an ounce, which makes it seem like, "Oh, gold must be a great investment." Well, it is, in that particular time period.

The problem is, when you're dealing with times of stress, it's very difficult .... It seems like you'd be able to time the market, get in when it's cheap and out when it's high, but that's actually a very difficult thing to do. We've seen that. We have quantitative proof that timing the market is very difficult.

The second exception is in times severe inflation. If you look at a gold chart, there's really two huge spikes over the last 100 years. The first was the one I just talked about in the financial crisis. Then, if you go back, there's another spike in the late '70s and early '80s, when we had double-digit inflation.

Gold is good because it can store value in times like that. But, right now, anybody who's thinking about inflation being a concern right now, I would urge you to moderate that belief, because we really have no evidence that inflation is anywhere even remotely an issue that the United States is going to be facing anytime soon. So, that's something you should probably put to the side.

And then, the final one, and this is probably where you're getting to with the point of your story, Gaby, is what I like to call a "hedge against anarchy." You have some people that believe that society is fragile, and that if society breaks, you're still going to need to buy things. And that when society breaks and you're still going to need to buy things, paper dollars won't work, and therefore, gold bullion will be the thing you want to transact with.

Well, that's fine and dandy. But, what I would recommend is that unless you have a ton of extra money, you probably shouldn't approach that strategy, because it's not an investment strategy. It's just like sticking toilet paper in your cellar, is all that is.

Lapera: Yeah. If we do end up in a world anarchy situation, I recommend that you loot a pharmacy first, because I'm pretty sure antibiotics are going to be more valuable than gold at that point.

Maxfield: That's a great point! That's the first thing I'm going to do.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
110%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.