A Comparison between Stocks Vs. Gold Investment

Halal Investment should be part of your financial plan. However, there are several investment options available to investors, which can be overwhelming. Gold and stocks are popular asset classes that are permissible for Muslim investors. But there can be a dilemma on the asset to choose. A comparison of stocks vs. Gold can help investors make guided decisions.

Thus, this article will show you what you should know about Gold and Stocks investment so you can select the best for your portfolio.

What are Stocks?

Stocks represent a share of ownership in a company. When you purchase a stock, you are buying a piece of the company and entitled to a portion of its earnings. Stocks are traded in different exchanges, and market forces like demand and supply determine their price.

What is Gold?

Gold is one of the numerous precious metals that human have valued for many years. They don't generate earnings or dividends, but their value lies in durability and rarity. Gold is available in several forms, like coins and bullion, and is indirectly traded via ETFs.

How stable is Stocks vs. Gold

While considering whether to invest in stocks or Gold, one of the factors to consider is stability.

Stability in Stocks

Stocks are LESS stable than Gold, i.e., they're more volatile. The stock market experience different fluctuations. However, the volatility can come with great returns over the long term. Historically, stocks usually outperform most assets and give more profits. But remember that stocks' volatility can also lead to losses.

Stability in Gold

Gold is LESS volatile than stocks and is often referred to as a stable investment. It's not susceptible to fluctuations in the market. During a period of economic instability, Gold can serve as an asset to retain value, and it typically increases in value.

How liquid is Gold vs. Stocks

When it's time to convert your assets into cash, the liquidity comes into place. Stocks are greatly liquid since they can be exchanged at different stock exchanges. Also, the transaction fees for buying and selling are low. Similarly, Gold is liquid, too. You can convert it whenever you want. However, you should store and insure your Gold before it's time to sell.

Stocks vs. Gold Diversification

Another factor to consider when deciding between Gold vs. Stocks is the ease of diversification. Stocks offer several market opportunities where you can diversify. There are many geographic sectors and company sizes to choose from and diversify your funds. Gold, however, has a different diversification. It's inversely related to stocks during huge market downturns, making it a reliable hedge.

The Ease of Investment

Stocks and Gold are quite easy to buy today. You can use a brokerage account to buy stocks using a phone or computer connection. Some platforms online can also guide you to buying halal stocks. You can buy Gold physically or using ETFs and mutual funds to travel prices. Buying physical Gold is aesthetically pleasing, but remember to consider the insurance expenses and storage.

Long-term/Short-term Investment

Stocks are better assets for long-term investments. The stock market has a reputation for providing profits within the short term due to the high volatility. So, long-term investors can benefit for a long period. Holding Gold for the long term won't provide the kind of profits realized from stocks. But it can provide smaller profits in the short term.

Pros of Investing in Gold

• Serves as a hedge against inflation

One of the main advantages of investing in Gold is the way the asset increases in value during inflation. However, the value may not increase during inflation, but it's still a potential investment factor.

• A haven for economic damages

Purchasing Gold can help investors get through an economic crisis, since the price may increase during this period.

• Diversification

Some investors invest in precious metals as a means of diversifying their portfolios. Instead of having all your funds in an asset, you can diversify across different investments to ensure you manage your risks. Gold will help to balance your portfolio better.

Cons of Investing in Gold

Since all assets have advantages and disadvantages, Gold is not an exception.

• Performance on long-term

Gold might be the best investment asset for a few periods, but holding it for a long time might reduce its value. If you're saving for an important occasion, investing in Gold for a long time can hold back the profits you could gain if you had purchased stocks or ETFs.

• Complex

It can take time for a new investor to catch up with the process of gold investing. So, it's better to learn about the complexity of gold investment before venturing into it.

Pros of Investing in Stocks

• Profit-earning

Investing in the stocks of a company makes you eligible to earn from the profits of the enterprise. It can be a passive income that you can use to buy more sticks to increase your profit-earning rate.

• Higher returns

Due to the volatility in stock prices, higher returns are certain. Although, it's advisable to invest in halal stocks that can safeguard your investment. Stocks shouldn't be the only asset of your portfolio, but as a means of diversification that can boost your asset portfolio in the long run.

• Long term holding

Stocks are a better investment in the long term. Although stocks can fluctuate easily, they outperform other assets like bonds. A good way to enjoy Stocks is to invest long-term for continuous profit earnings.

Bottom Line

Choosing between Gold and Stocks is a dilemma many Muslim investors face. Since both are permissible asset classes, you might be wondering if you should go for Gold or Stocks. With our Stocks vs. Gold comparison, we hope you can make the right decision for your investment plans.