Gold Glitters, But Does It Build Wealth?

AMA4-27-14Precious metals, most notably gold, are rebounding in international money markets after a fairly long slump, sparking new interest among investors. But in spite of gold’s storied past and the cachet attached to international gold trading, the bright metal’s value as a wealth building asset is actually quite limited.

Precious metals investing offers investors the chance to make a profit, sometimes very substantial, if they sell quickly when the price is right. But as Shawn Watkins of Investing Workshops explains it, once the deal is done, what profit an investor makes is static. In order to make more money, it’s necessary to buy more gold –at a price that may be very different. And that gold isn’t going to be working for an investor: yielding a regular annual return, or earning tax breaks and credits.

Real estate can – as long as you don’t treat it like gold. House flipping – buying real estate at low prices and selling it as fast as possible for a profit – is like investing in precious metals. House flippers don’t look to the long term – they turn their profits back into the next house, and the next one.

Because house flippers sell as soon as they can, they lose the opportunity to make long term returns in the form of rents and tax breaks. And they may face even more taxes on profits made from the sales of assets. What’s more, any profits made can be devoured by the next attempt to get back into the investing game.

Investors who build long-term wealth put their assets to work for them, with a steady return year after year and the annual round of tax breaks that make real estate the most tax friendly investment available. While house flipping does involve buying residential real estate, the fast turnaround eliminates all those opportunities for ongoing returns.

As Jason Hartman says, buying – and holding – residential property is the key to building long term wealth. The steady return from rents, along with the still-formidable list of tax breaks and credits available to investors in income property may not be as dramatic as buying gold or flipping houses – but for creating solid income streams, it’s no flash in the pan.  (Top image: Flickr/images ofmoney)

Read more from The American Monetary Association:

The Dollar’s Still a Mainstay of World Currency

AMA 82 -Gold Prices With Dent Research Editor Rodney Johnson

The American Monetary Association Team

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