Physical gold versus conventional investments
Physical gold versus conventional investments. Lets compare the value of gold, the FTSE 100 index, and UK Government Bonds over the last 10 years:
Gold
10-Year High: £2,232.55 per ounce (24th Jan 2025)
10-Year Low: £694.19 per ounce (31st July 2015)
Current Price: £2,215.00 per ounce
Average Annual Return: 12.2% (since 2015)
FTSE 100 Index
10-Year High: 8,542 points (January 2025)
10-Year Low: 5,500 points (March 2020)
Current Level: 8,542 points (January 2025)
Average Annual Return: 6.2% (since 2015)
UK Government Bonds (Gilts)
10-Year High Yield: 1.5% (January 2025)
10-Year Low Yield: 0.5% (March 2020)
Current Yield: 1.5% (January 2025)
Average Annual Return: 2.0% (since 2015)
Summary:
Gold has seen significant growth over the past decade, with a notable increase in value. The 10-year change in the value of gold shows a significant increase of around 219%. FTSE 100 has shown moderate growth, with some fluctuations due to economic and political factors. UK Government Bonds have provided stable but lower returns compared to gold and the FTSE 100.
Now consider management fees:
Physical Gold: If you buy physical gold, there are no ongoing management fees. If you decide to, you may incur storage fees, and there will always be the spread for buying/selling.
FTSE 100 Index Funds:
ETFs: Management fees for FTSE 100 ETFs are quite low, often around 0.07% to 0.09% per year.
Mutual Funds: These can have slightly higher fees, typically around 0.5% to 1.5% annually.
It doesn't sound like much, but for an investor with £50,000 over a 20 year period you would be charged between £5,000 and £15,000.
UK Government Bonds (Gilts)
Gilts: There are no management fees for holding gilts directly, but if you invest through a fund, there may be ongoing charges similar to those for mutual funds or ETFs.
Now consider the Tax implications:
While certain investments offer tax advantages, many traditional assets are subject to capital gains tax (CGT) on profits. In the UK, the CGT rate can be as high as 20% for higher-rate taxpayers. This means that a significant portion of your investment gains could be lost to taxes. Additionally, dividend income from stocks is also taxed, further eroding your returns.
Physical gold bullion such as Britannia coins are exempt from CGT for British nationals.