Gold trading and equities are two investment options that benefit the average investor. While one assures you of potential profits over a long period, another presents you with a chance at quick, exponential profits over a short period. Which of these proves to be the most beneficial investment option for you? Well, you don’t know the answer to this unless you fully understand what the two investment options are about.
This article presents you with all you need to know about gold trading and equities. Let’s get right to it.
Table of Contents
What is An Equity Investment?
Simply put, an equity investment involves purchasing the shares of a company in anticipation that these shares will increase in value. Shares are traded on the stock exchange market, and where the investment is suitable, they offer investors a chance at massive profits. With equity investment, profits either come as capital gains and/or capital dividends. These profits are also realized when the investor either sells their shares for the difference or when the company is liquidated, and the investor gets their part of the deal.
Alongside a chance at exponential capital appreciation, equity investment allows you to beat inflation. This is because you have your money in an asset rather than fiat currency subject to inflation, keeping your money safe and secure. Well, to some extent.
Equity investment comes with its risks. They are volatile, and the fate of your investment depends on the activities of the company you invest in. Price could swing from substantial profit to extreme loss over a short period, and as a retail investor, you have little to do to control this.
Methods of Investing in Equity
There are two methods of investing in equities; Direct investment in stock and investment in mutual funds. No matter the method you choose, approach equity investment with a long-term goal in mind.
Direct stock investment
This is the basic idea of equity investment, connoting an immediate purchase of a company’s shares with the anticipation of an increase in value. This type of equity investment requires high investment skills, gives you the freedom to choose which stocks to invest in, and offers a high ROI potential.
Investment in mutual funds
This gets a little more complicated. Rather than choosing the stock you want to invest in, you give your capital to a mutual fund company that helps you manage investments and choose stocks professionally. Capital is pooled from other investors, and the risks on your capital are reduced thanks to a diversified portfolio of company shares.
Mutual funds allow you to invest with lower capital than direct stock investments, have higher liquidity, and require little to no skill, thanks to professional management by your chosen mutual fund company.
Also read: Golden Rules To Follow While Investing in Share Market
What is Gold Trading?
Gold trading is simply the buying and selling gold and its derivatives for profit. It involves investment in gold for profit from an increase or decrease in its value over a long-term or short-term period.
It is also distinguished from gold investment. Gold investment indicates a direct purchase of physical gold, with the investor having complete ownership and control over it. Gold trading involves buying and selling positions on the Price of gold, with the Price of gold determined by other investors investing in/directly purchasing it.
From there, you recognize that there are two spectrums in the general gold trading market, giving investors many options when it comes to choosing where to place investments. However, the advantages of gold trading don’t stop here.
Gold is regarded as a haven during financial crises. It serves as a commodity that gives investors safety from economic crashes and a chance to capitalize on a very volatile market.
Methods of gold Trading
There are multiple methods of trading gold; Gold Bullion, Gold Futures, Gold Options, and Gold ETFs. Gold bullion is the direct purchase of physical gold by an investor. This is more popular with institutions like banks and less popular with retail investors due to the cost of maintenance.
- Gold Futures – Gold futures involve a contract where an investor takes a position on the Price of gold and is obligated to either buy or sell gold at a future date. Gold options are a little different from this.
- Gold Options – These are positions on the Price of gold without the obligation to buy or sell in the future. Rights replace these obligations, and the investor can choose to either exercise this right or not.
- Gold ETFs – Gold ETFs are special to our discourse. They involve investments in the stocks of companies that directly derive their value from dealing with gold. A change in the Price of gold leads to a change in the value of the shares of these companies. These could be companies that mine gold or manufacture objects from gold. One of the most popular investment options with these is Gold CFDs.
Gold Trading Or Equity Investment?
From all that has been said, you see that gold trading gives you everything equity trading offers and more. You engage in equity trading through gold ETFs, although this is only limited to companies that deal with gold. You then have other investment options like gold bullion, futures trading, and options trading. These allow you to diversify your portfolio and realize even more profit than equity investment could offer over a short period.
What’s more, the presence of brokers in gold CFDs allows you to invest a small amount of money in realizing huge capital gains. Gold grants you all the advantages that direct equity investment in stock and mutual funds provides.
Gold Trading and Equities in The Long Run
Equity is great for long-term investments, especially when you choose the right company to invest in. However, are these long-term investments better than what gold provides you?
Looking at the FTSE 100 and the estimated value they have provided over time, long-term investment of $10,000 in 2000 would’ve played out like this
| Year | 2000 | 2004 | 2008 | 2012 | 2016 | 2020 | 2022 |
| Price | $10,000 | $8,500 | $8,000 | $10,500 | $14,000 | $18,000 | $22,000 |
With Gold, long-term investment from 2000 would’ve played out like this
| Year | 2000 | 2004 | 2008 | 2012 | 2016 | 2020 | 2022 |
| Price | $10,000 | $12,000 | $18,000 | $58,000 | $40,000 | $65,000 | $73,000 |
From the tables and degree of appreciation from a 22-year-long investment, the FTSE 100 gives you a profit of 120% while Gold gives you this in five folds; a profit of over 600%.
From the tables and degree of appreciation from a 22-year-long investment, the FTSE 100 gives you a profit of 120%, while Gold gives you this in five-folds, a profit of over 600%.
Although certain company shares have experienced exponential growth of more than a 120% profit, you need to invest in these species. Gold investment is general, and no matter what you choose to invest in, you will have this exponential profit in the long run.
Conclusion
Are you still confused about which is the better option? With information all over the article, gold undoubtedly is the safest and more profitable of both investments in both short-term and long-term periods. In addition, it offers you all the benefits of equity investments and more.
Perhaps, the only advantage equity investment has over gold trading is the possibility of purchasing the shares of companies that don’t depend on gold.
Also read: Which Investment is Better for You: Gold or Silver?
