Digital Gold vs. Stocks and Shares

There are a multitude of ways in which you can invest your money and build a varied and well-balanced investment portfolio. If you are completely new to investing, this lesson will help you learn more about stocks and shares, as well as precious metals.

What are Stocks and Shares?

The terms ‘stocks and shares’ refer to a way in which an individual may invest in a company. In practice, there is little difference in the distinction between ‘stocks’ or ‘shares’ as they are terms which are usually used interchangeably and, for most, refer to the same thing. In the UK, we will often talk about the ‘stock market’ but will similarly refer to owning ‘shares’ in a company. The term ‘stock’ is generally used to refer to portions of ownership in multiple companies. For example, someone could say that they own stock in both Tesla and Amazon.

A ‘share’ is simply a unit of a company which has been divided up that you can purchase. For example, if a company is valued at £1 million and there are a million shares, each share is worth £1 (usually listed as 100p). If you choose to invest in shares, you would not purchase the shares directly from the company. Instead, you would purchase them through a share dealer on a stock exchange. It is worth noting that when you purchase shares, you are buying them from an existing shareholder who wishes to sell. In the same way, when you choose to sell your shares, you do not sell them back to the company but to another investor who is looking to buy shares in that company.

How do They Compare to Gold?

If we compare this to gold, when investing in the yellow metal, there are many ways to start. Physical gold bullion may offer you a chance to purchase gold bars or coins and either hold them yourself or store them safely in a secure vaulting location. This is very different to owning stocks and shares as, for the most part, buying physical gold allows you the flexibility to purchase whole gold bars or coins.

This is where DigiGold, The Royal Mint’s digital gold product, offers you an additional level of flexibility that sets it apart from physical gold bullion. Much like when you invest in shares of a company, with DigiGold you are investing in shares of a gold bar that is stored safely in The Vault ® at The Royal Mint. As you are purchasing a share of that bar, other investors will own other shares in the bar as it has been electronically divided to facilitate this. The other important distinction of DigiGold is that you are able to invest in monetary values instead of a fixed amount. Each share of the bar is equal to 0.001 troy ounces, so investors purchase multiples of this, rounded to their investment figure, and starting from as little as £25.

When you wish to sell some or all of your investment, it is sold directly back to The Royal Mint. Also, unlike stocks and shares, you are able to trade 24 hours a day, 7 days a week. When you request to ‘buy’ or ‘sell’, you are offered a trade which is presented at the current precious metal price. This trade will be executed immediately and either added or deducted from your precious metal holding. However, with stocks and shares, if you place a buy or sell request out of the normal trading hours, the trade is usually only executed once the stock market is reopened again, usually the next working day. This means that there is a certain level of ambiguity around the price which is being offered, as markets can rise and fall between the time you request a trade and when it is actually placed.

How do the Returns Compare?

In the same way in which the value of other investments can rise and fall, with stocks and shares the value of your ‘share’ of that company will also rise and fall for a variety of reasons. This could be due to positive or negative news about the company in question, or simply due to the market conditions in which that company operates. For example, during the start of the coronavirus pandemic, the share price of companies which were associated with remote working increased in value, as many people were encouraged to work from home. Similarly, shares in companies which are associated with travel, such as airlines, fell in value. This is due to market conditions, but also supply and demand. Of course, the same is true of gold. However, the gold price is often said to move in an opposite way to the stock market. This is because in times of market or economic turmoil, people turn to gold as a ‘safe haven’ investment. This has been true historically as, although many stocks and shares fell at the start of the coronavirus pandemic, the gold price reacted and increased significantly.

If we look at more specific figures, the FTSE100 is a share index which tracks the top 100 companies by market capitalisation on the London Stock Exchange. Due in a large part to market volatility relating to the pandemic, between 12 February and 7 August 2020 the FTSE100 fell over 1500 points. This saw the index fall from 7534.37 to 6032.18 – a decrease of nearly 20%. When compared over the same period, the gold price increased from £1,566.75 to £2,061.50 – an increase of over 31%.

Although it could be argued that the pandemic was an extreme event, if you compare the performance throughout the whole of 2019, both the FTSE and the gold price performed well throughout the year, both increasing steadily. However, whilst the FTSE increased by an admirable 12.76%, it still fell short of the 18.12% increase seen in the price of gold when compared over the same period.

Should I Choose Gold or Stocks and Shares?

Both gold and stocks and shares are options which many investors choose to add to their portfolio but, when compared, each have their own advantages and disadvantages.

One of the initial reasons many choose to invest in gold is the financial security which it is said to offer, especially in times of crisis. As previously shown, gold is said to be useful as a ‘safe haven’ during times of political, social or economic unrest, whereas some commodities, such as stocks and shares, can fall in value. If your portfolio was not diverse and was comprised solely of one investment type, you are at risk of your entire investment portfolio being affected. Because of this, people are said to use gold to ‘hedge’ their portfolio from these fluctuations and insulate their portfolio from wider-market activity.

Gold is also usually referred to as a ‘long-term’ hold or store of wealth because historically it has tended to perform well over time. This is important to note as, in contrast, although some stocks and shares are held by individuals for a long period of time, many use stocks or shares for short-term gain.

Lastly, although some investment platforms have made investing in stocks and shares easier than they have been in the past, it could be said that stocks and shares are still difficult for new investors to understand. Choosing shares to invest in is something which can be difficult or confusing for new users, resulting in a higher barrier to entry. In the past, precious metals would be obtained from perhaps a jeweller or a precious metals dealer. Although this option is still available, institutions like The Royal Mint now offer investment platforms which are dedicated to precious metals and provide a much easier barrier to entry. For example, our digital precious metal product DigiGold offers investors an opportunity to invest in precious metals 24 hours a day from an easy-to-use web interface. From your account area, you can view your portfolio balance as well as buy or sell at any time.

When choosing between gold or stocks and shares, many would suggest that there is no right or wrong answer. The choice you make is very much dependent on your own attitude to risk and reward, as well as factors around how long you would like to invest for. Similarly, as discussed in previous articles, one of the most important considerations for any investor is to ensure that your portfolio is diverse. Spreading your investment portfolio across multiple asset classes can seek to ensure that your risk, and hopefully your reward, is secure as a result.