Kelly Bullis: Is gold a good investment?
Few things cause more emotion than the yellow stuff called gold. It was responsible for causing the West to be settled by Americans rather than Mexicans. It was the cause of many ruined lives as folks gave up everything to come to California, Nevada, Idaho, Montana, Colorado, New Mexico, Alaska, and Arizona to try their luck, only to lose and either go home broke or die without ever making it home.
It has helped rise up nations and pull down nations. It has been a medium of exchange between nations (and still is to some extent). Governments have fixed exchange rates (below market value), confiscated it, stored it, shipped it across oceans and lost it. Coin collectors love all the various ways that gold has been made into currency over the history of mankind.
Today, radio and TV advertising constantly bombard the airwaves with enticements to invest in gold. So, here’s the big question, is it a good idea or not to invest in gold? (Coins, and bullion.)
From a tax perspective, gold is taxed at a special higher tax rate. (All “collectibles” such as coins, precious metals, antiques, and fine art.) If you hold it for one year or less, it’s taxed at your normal tax rate as “short term capital gain.” If held for more than one year, it’s taxed at a flat rate of 28%. Ouch! If your normal tax rate is 10% and you hold gold for more than one year, you pay 28% of the gain (if any) on the sale of the gold. Conversely, if you had purchased “normal” investments like stocks, bonds, and real estate, and your regular tax rate is 10%, the first amount of the gain until your total income reaches $78,751 is taxed at 0%, the next $410,099 is taxed at 15%, then the remaining gain is taxed at 20%.
To put it bluntly, your gold investment better make at least 15% more gain than a similar investment in normal investment items like stocks, bonds, and real estate. If not, the extra tax makes gold less profitable after tax.
When I looked up average annual earnings on gold from Jan. 1, 2000 to Dec. 1, 2019, the annual rate of return has been just over 8%. If you had invested in an S&P500 Index fund, you would have earned 3.5% a year. If you invested $1,000 on Jan. 1, 2000, you would have earned $4,142 if you held gold for that 19-year period and $982 with the stock fund. The after tax result would have been getting to keep $2,982 for gold and $982 for the stock fund. Thus, even with the higher tax rate, gold outperformed the stock fund for the last 19 years. Will that be the same for the next 19 years? If I knew the answer to that, I could make millions selling my advice.
Did you hear? Prov 13:11 says, “Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com Also on Facebook.