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Buying gold in 2022 is becoming more popular than investing in cheap stocks. With rising inflation and interest rates, along with the ongoing energy crisis, stocks have been underperforming lately.
But as scary as it is to watch my portfolio suffer, these problems are ultimately short-term speed bumps. As a long-term investor, I am not interested in what happens in the next couple of months. My focus is on the next decade.
At a time when most investors seem to be in complete panic-selling mode, many fantastic businesses in my opinion are being exceptionally undervalued. And as history has shown countless times, buying and holding high-quality, dirt-cheap stocks is one of the best wealth-building investment strategies.
Gold with cheap stocks
Recently, the price of gold has been increasing. And compared to the stock market’s performance, the commodity appears to be crushing equity investors.
This is not surprising, as gold has been used as a store of value in times of economic turmoil and to protect against inflation for centuries. But as the economy boomed, the metal failed to deliver any meaningful gains compared to the stock market.
In the year Since the height of the 2008 financial crisis, the price of gold has increased by 72% in 14 years. That equates to a 3.9% annual return, just ahead of inflation at the time. In contrast, the FTSE 250 The index has returned 231%, or 8.9% annually, over the same period.
These figures show that gold works as a way to protect wealth. But to raise capital and build a nest egg, buying cheap stocks for the long term steals the show.
Timing the market is a losing game.
What if I sell my stocks today, buy gold, and buy my stocks at a better price after the stock market has stopped trading? In theory, this seems reasonable. In fact, it is often wrong.
The problem with developing this investment strategy is that you need to accurately predict when the stock market will begin to recover. This is easier said than done. And it’s worth noting that in previous crashes or corrections, the bottom hit when investor sentiment suggested things were about to get worse.
In other words, trying to time the market is impossible. And even professional investors and traders make mistakes all the time.
That’s why holding onto my share of changing times, as unpleasant as they may be, is often the best move. But I can use the situation to my advantage. Despite their popularity, stock market corrections and crashes are not all that common, and neither are the buying opportunities they create.
In a panic, even the best stocks with strong balance sheets, proven business models and talented management can sell off. If I can successfully identify these trades, I can raise my bar once the stock market recovers.