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Investing in gold vs. stocks: What's the difference?

Both gold and stocks have the potential to earn you decent returns over the course of many years. Olivier Le Moal/Getty Images

Investors have plenty of options to choose from when it comes to which assets to include in their portfolios. Gold has been in the news a lot lately, but stocks are what most people think of when it comes to investing. Which option is better for you? Or are they both worth considering?

If you're evaluating the two, it's important to understand each asset's advantages and disadvantages, the differences between the two and how they fit into your overall investment strategy and goals. In this article, we'll help you do just this.

Learn more about gold investing today with a free information kit.

Investing in gold vs. stocks: What's the difference?

Gold and stocks offer different benefits and drawbacks. Here are the key differences you need to know when deciding which to invest in.

Potential returns

Both gold and stocks have the potential to earn you decent returns over the course of many years. But gold tends to earn moderate, steady returns year after year, while you could earn quite a lot all at once if a stock takes off and you sell it at just the right time.

Of course, knowing which stocks to pick and when to sell requires a considerable amount of research and experience. The average investor isn't likely to hit the jackpot playing the stock market.

Explore gold investing options online now.

Risk level

Stocks' high earning potential is offset by the fact that they also have a high loss potential. You could just as easily lose it all overnight as you could win big if you bet on the wrong stocks. 

Stocks are also highly volatile and susceptible to everything from market forces to bad PR for a particular company. As a result, their value can fluctuate wildly from day to day.

While gold's price also rises and falls over the short term, the swings are usually much less pronounced, making it a great way to protect your portfolio from losses.

Holding period

Gold is best considered a long-term investment. It's been proven to hold its value over time, weathering economic woes well and preserving purchasing power in times of inflation. While you can easily sell it for cash anytime, you're better served by holding onto it for years (if not decades).

Stocks can also provide a solid return if you hold them over a long period, but you don't have to. As mentioned, if you can time the market just right, you could earn big shortly after acquiring a stock. It's not easy, but it's possible.

Dividend earning

The only time you get money from your gold investment is when you sell it (in the case of things like physical gold and gold ETFs) or when you withdraw from it (in the case of things like gold IRAs). You don't earn anything from it while you still hold it.

By contrast, some stocks provide dividends (shares of company profits) on a regular basis. This makes them a better fit for investors looking for a passive income stream.

The bottom line

Investing in gold or silver doesn't have to be an "either/or" decision. You can have both — and, in fact, it's better that you do. Diversifying your portfolio with a mix of asset classes allows you to balance risk and reward, ensuring a good return on your investment without setting you up for potentially big losses. 

Experts recommend you keep 5% to 10% of your investing dollars in gold. For stocks, aim for 100 minus your age. For example, if you're 40, then 60% of your portfolio should be in stocks. Adjust this percentage as you age to reduce your risk as you get closer to retirement.

Find out how to add gold to your portfolio by requesting a free gold investors kit.

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