How do you compare the total financial return of investing in gold to investing in stocks?

One approach is to select some time period and look at the annual change in price of gold vs. the price of some stock index (like the S&P 500).

USAGold.com did this and AllFinancialMatters.com created a chart with the results of investing in gold compared to the S&P 500 for each year from 2000 to 2009.

Although the last column of the chart is not very useful, the results are fascinating:

“During the first decade of the 21st Century, the price of gold has seen an average annual increase of 14.41% compared to the S&P 500 Index’s Total Return of -.95%.”

Now, the results will vary depending on what time period you choose.  You can make either gold or stocks look great just by selecting the right time period.

Nonetheless, the past decade is a reasonable time frame. And as the author says:

“This is not to be taken as a promotional for investing in gold.”

I do believe that investing in gold — even now if your time horizon is 2-3 years or longer — makes a lot of sense.  I certainly wouldn’t invest a lot in gold right now, but it’s virtually impossible to time the market. Probably the best rule of thumb is to know that when you invest, it will go down right after.  😉

But gold is a great hedge against inflation, and I believe just about everyone should own some gold. How much depends on each person’s individual situation.

And with the huge expansion of money supply (it’s doubled recently!), inflation will become a serious issue over the next few years.

If you’d like to find out more about investing in gold, and especially investing in American bullion (the best place to start), check out this article.

And now tell us what YOU think by commenting below…