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Gold vs. the S&P 500

By Selena Maranjian - Updated Apr 5, 2017 at 4:33PM

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Gold has recently topped $700 per ounce. Should you buy?

I recently ran across a chart pointing out that gold -- represented, in this case, by the streetTRACKS Gold Shares (NYSE:GLD) exchange-traded fund -- has outperformed the S&P 500 over the past two years. It made me worry that the chart might inspire some people to move some -- or even most -- of their money from the broad stock market into gold.

In case you're one of those folks, here is some food for thought: Even though gold has spiked sharply in value recently, it hasn't been a long-term winner for most investors. According to University of Pennsylvania finance professor Jeremy Siegel in his seminal book Stocks for the Long Run, here's what a dollar invested in various things would have grown to, from 1802 to 2001. (Amounts have been adjusted for inflation.)

  • Stocks: $599,605
  • Bonds: $952
  • Bills: $304
  • Gold: $0.98

Did you catch that? Over 200 years, you would have lost two cents of your dollar if you had invested in gold.

OK, so if your personal investing timeline is less than 200 years, here are some compound average annual returns to consider:

Period

Gold

S&P 500

1982-2007 (25 years)

3%

11%

1987-2007 (20 years)

2%

8%

1992-2007 (15 years)

5%

9%

1997-2007 (10 years)

8%

5%

2002-2007 (5 years)

18%

13%

Sources: Yahoo! Finance, MeasuringWorth.com

Gold may indeed be trading high right now, and it has certainly rewarded investors who bought at the right time. But "the right time" is clearest only in retrospect. Over most long periods, gold hasn't been the most spectacular investment, while stocks have generally done rather well.

If you still want to invest in gold, a smarter way is through mutual funds. The Vanguard Precious Metals and Mining (VGPMX) fund, for example, sports an average annual return of about 33% over the past five years, and it's invested in companies such as Barrick Gold (NYSE:ABX), Gold Fields (NYSE:GFI), Arch Coal (NYSE:ACI), and Aber Diamond (NASDAQ:ABER). It's closed to new investors at the moment, but such funds often reopen after a while. In the meantime, for mutual funds that we at the Fool have recommended, you can take a free test-drive of our Motley Fool Champion Funds newsletter service.

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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.

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Stocks Mentioned

Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
GOLD
$15.60 (-1.14%) $0.18
SPDR Gold Trust Stock Quote
SPDR Gold Trust
GLD
$165.29 (-1.12%) $-1.88
Gold Fields Limited Stock Quote
Gold Fields Limited
GFI
$9.29 (0.54%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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