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:



S&P 500

1982-2007 (25 years)



1987-2007 (20 years)



1992-2007 (15 years)



1997-2007 (10 years)



2002-2007 (5 years)



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.

You may also want to check out these articles:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.