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Gold vs Shares - FTSE 100

Stocks and shares have long been a rival to gold as an investment option, with the potential for sizeable gains to be made at the downside of high risks. Gold meanwhile offers a lower risk option, but still has the potential to make good returns. As we discuss further below, the returns on gold can outweigh the FTSE 100 here in the UK quite considerably. Gold vs stocks of course suggests that it’s one or the other, while many savvy investors will typically diversify their portfolio by having money in many different assets to help reduce risk and increase potential returns.

The benefits of gold vs shares largely come down to risk and timing. During times of uncertainty, gold protects investors and their wealth against the devaluation caused by inflation, but gold is traditionally a long-term investment. Investors are able to realise quicker profits in some cases with stocks, and it’s that allure that makes stock markets the big rival, but at the cost of higher risk.

What is the FTSE 100?

The FTSE (Financial Times Stock Exchange) 100 is a share index owned by the London Stock Exchange. It lists the top 100 companies in the UK that are eligible through their share listings.

Known as the ‘Footsie’, the London exchange has been operational since 1984. Unlike the heavily domestic FTSE 250, the FTSE 100 is more of an international stock exchange.

The London Stock Exchange in Paternoster Square, home of the FTSE 100, 250, and 350.

Dividend Yield

One of the reasons that stocks and shares are popular is the fact that they yield a dividend - whether on an annual, half yearly, or quarterly basis. Shareholders are often paid a small return based on stock performance and the quantity of shares they own.

To calculate this, the most recent full-year dividend is divided by the company-in-question’s share price. This reveals the current dividend yield, which is the percentage of share value that is paid.

Below is a chart of the average dividend yields for the last decade in the FTSE 100, with an average value of 3.80% yield. As can be seen below, dividends typically don’t deviate too much, but can fall such as in 2021 as company’s reduced dividend pay-outs during the pandemic and struggles this brought for many businesses.

FTSE 100 Average Yield

FTSE 100 vs Gold Chart

As shown in the chart below, despite some of the perceptions regarding gold vs stocks, the value of gold has outperformed the average FTSE 100 value considerably in the past ten years.

Gold vs FTSE 100

At a time when stock markets are considered to have been in a bull run and recovering from the financial crisis, the overall gain of the FTSE 100 in the past ten years amounts to just 13.17%. Starting at 6,731.43 points in October 2013, the FTSE 100 index is still only worth 7617.97 points at the start of September 2023. At it’s peak, in Feb 2023, it hit 7876.28 points for a 17.01% gain over the starting point, whilst losing value in 2020 as businesses reacted to the pandemic.

Conversely, gold started the same timeframe at £796.12 per ounce, and has gained 92.54% to reach £1532.84 in September 2023. Gold even doubled as of May 2023, hitting £1601.51 per ounce.

After initially trading in quite similar trends, gold quickly broke away from the FTSE 100 in 2016 and since that time has continually outperformed the gains made by the FTSE 100. Individual stocks could of course perform better, or indeed even worse in some cases, but the performance of gold vs stocks in the past decade certainly demonstrate the growth potential for the precious metal.

Gold investments are also far simpler than stocks. With gold you can simply order a physical coin or bar, store it safely, and sell in the future. Stocks will typically require much more micro-management; reading company updates and financial reports and trying to pick the winners from the losers. Or you may opt for a managed service, letting someone else do the hard work, but with the loss of some of your money as a result.

As mentioned earlier however, stocks can fall/rise in price very quickly, offering short-term buying/selling opportunities for those who have the skills to manage them. They can also offer a small ongoing income in the form of dividends, while gold will not yield anything until it has been sold.

Gold vs Stock Market

Opportunism is everything when it comes to investing in gold vs the stock market. They will have good and bad times and knowing which to choose and when to buy is the sign of a smart investor. Many investors will also look in diversifying their portfolio, investing in both gold and stocks to reduce the risk from stocks, while still gaining some exposure to the potential gains.

In 2016, analysts forecasted a strong run for shares over gold. This came to fruition, and stock markets have performed well thanks to the intervention and money-printing of central banks. How long the stock market bull run can continue however is on the minds of many investors. A financial reckoning is due, and stock markets, as well as the companies that trade on them, will be likely targets for governments looking to claw back the trillions being spent. A stock market bubble could result in a significant crash, with results similar to the 1930s, 1990s and 2008 onwards.

Gold is more beneficial in the long term, while stocks and shares offer potentially quicker profits in the short term, but it’s all about timing. As the charts above show, buying six months too early or too late could cost you thousands, so it’s all about research.

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