When the economy and markets are on the verge of instability, most investors will ask the same question:
‘Should I wait until things settle down, or should I exit and pursue an alternative, ‘safer’ strategy?’
Historically, investing in gold has been regarded as a safe haven asset – a vault to preserve value, offering protection against inflation.
However, in recent years, buy-to-let property investment has developed a similar reputation. Renowned for its ability to remain resilient amidst significant bouts of economic turbulence, buy-to-let also offers up the potential for capital appreciation over the years alongside regular returns through monthly rental income.
In 2023, as interest rates rise and the threat of total market collapse dominates headlines, will buy-to-let investments prove to be the ‘new’ gold, providing stronger (and safer) returns for investors?
Advantages of Investing in Gold
The price of gold tends to increase when the economy is experiencing an economic downfall, with inflation rates rising. This is because gold is a tangible asset that maintains intrinsic value and does not rely on the individual performance of a company or government (as seen when investing in the stock market or bonds). Gold is also an incredibly liquid asset, meaning it can be easily bought and sold without waiting for conversion.
Other advantages of investing in gold include:
- Wealth and Inflation Protection: As the value of money depreciates over time due to inflation, past performance has shown that the value of gold tends to increase, meaning that investing in gold can help preserve the value of money over time.
- Diversification: Investing in gold can also assist in diversifying an investor’s portfolio, spreading the overall risk and volatility of investments.
Disadvantages of Investing in Gold
Whilst gold can provide some benefits to investors, there are some risks to watch out for.
These can include:
- Limited Returns: Compared to most other investments, gold produces limited returns. Gold also doesn’t generate regular income, which may make it less attractive for those seeking long-term returns. Although gold can be highly lucrative, it’s unlikely to see gains as substantial as those seen with alternative investment options.,
- High Storage and Insurance Costs: Storing physical gold can be time-consuming and expensive. Gold is also a massive target for theft, meaning that sourcing and maintaining the best possible security is a priority.
- Short-Term Fluctuations: While gold has shown itself to be a ‘safe haven’ that stands tall in the face of inflation, its value can be volatile in the short term. Prices can waver depending on short-term factors like market status and instability. Over the last few years, prices have behaved erratically, making it difficult for investors to predict and rely on gold for long-term profit accurately. Learn more about the latest Gold Price on the Gold.co.uk website.
Advantages of Investing in Property
Engaging with buy-to-let property is typically considered a lower-risk investment method. The strategy involves acquiring a property, renting it out, and earning a regular stream of income from monthly rental payments. With the potential for solid capital appreciation alongside this, investing in buy-to-let has become increasingly popular in recent years. Companies such as RWinvest have seen a surge in new buy to let investors and believe that the sector is growing month on month.
Other advantages of investing in buy-to-let include:
- Tangible Asset – Property is a physical asset that can be held onto for as long as desired. Again capital appreciation is rife with buy-to-let property, meaning that, after a few years, investors can sell their property at a higher price than they originally bought it for. At the moment, the highest predicted capital growth in the UK is in the North West region, with an expected 11.7% increase by 2027.
- Consistent Rental Returns – Rental income can serve as a monthly income source or contribute to savings.
- Diversification: Like gold, buy-to-let investments can be a great way of diversifying a portfolio. By incorporating property, investors can spread out the overall risk of investment and help reduce the adverse effects of market volatility.
Disadvantages of Investing in Property
While buy-to-let investment offers many advantages, there are also potential risks to consider:
- Market Volatility: Property prices can fluctuate depending on the performance of the housing market.
- Void Periods: There is a risk of periods without tenants, resulting in a loss of rental income. Investing in the right area is crucial to minimise this risk.
- Higher Taxes: Some taxes, such as stamp duty tax, can be higher for buy-to-let property purchases.
When evaluating the benefits and risks of an investment, it’s essential to remember that while certain factors like void periods and market fluctuations can temporarily impact returns in the short term, the overall benefits of buy-to-let properties as a long-term strategy can sometimes outweigh these risks. If investors are careful and ensure that they commit to thorough research and keep up-to-date with the latest figures and predictions, then they can minimise any significant issues and also increase the likelihood of better returns.
Is Buy-to-Let the New Gold?
Investing in gold and buy-to-let each have their own advantages and disadvantages. In the past, gold was definitively known as the best investment type to engage with, providing a ‘safe haven’ in times of economic turmoil.
In 2023, buy-to-let investment offers similar stability and reliability in a crisis, alongside consistent returns and a larger capacity for long-term investment. Why not learn more about what passive income is and how it works in this handy guide.
A general rule of thumb with investment is that no strategy comes without risk – no matter which path you take, you will face some hurdles. When it comes to gold vs buy-to-let, whether one is more of a ‘safe haven’ than the other is entirely dependent on the needs of the individual investor.
For those seeking the best returns, you will need to carefully consider your goals, risk tolerance, and the scope of your investment before deciding which option is best for you.