Gold has attracted investors for hundreds of years, but for people in their 20s and 30s looking into this option, outdated advice can lead to poor choices. While older folks often recommend gold as the best protection against rising prices, today’s economy requires a smarter approach. Let’s look at seven harmful gold investment millennials mistakes that might be holding back your financial growth.
Mistake #1: “Gold Always Beats Inflation”
Despite what many financial experts claim, gold doesn’t always perform well during times of rising prices. Between 1980-2000, gold actually lost value while prices kept going up. Recent studies show that since 2000, gold has only had a weak connection to inflation rates.
Smarter approach: Consider I-Bonds for better inflation protection. Keep a smaller amount of gold (5-10% of your investments) to spread risk rather than counting on it to beat inflation.
Mistake #2: “Physical Gold is Always Better than Gold Funds”
Many young investors think owning actual gold bars or coins is automatically better than investing in gold through ETFs (exchange-traded funds) or mining company stocks. This belief ignores important costs:
- Storage fees (often 0.5-1% every year)
- Insurance costs
- Verification expenses
- Large price gaps between buying and selling (up to 5-10% for smaller purchases)
- Difficulty in selling quickly when needed
Smarter approach: For most people with less than $250,000 to invest, gold ETFs like GLD or IAU offer much more efficient ways to invest with fees under 0.25%, easy buying and selling, and no storage worries.
Mistake #3: “Gold is Great for Growing Your Money”
Perhaps the most dangerous of all gold investment millennials mistakes is thinking gold will grow your wealth significantly. Unlike stocks or real estate, gold doesn’t produce income, dividends, or cash flow. Its long-term returns after inflation are only about 1-2% per year—much lower than most other investments.
Looking at 20-year returns (2000-2020):
- S&P 500 stocks: 5.9% yearly (with dividends reinvested)
- Gold: 7.8% yearly
- Real Estate: 8.7% yearly
But when looking at 50 years, the picture changes:
- S&P 500 stocks: 10.2% yearly
- Gold: 7.1% yearly
- Real Estate: 8.9% yearly
Smarter approach: Use gold as financial insurance rather than expecting it to grow your money significantly. The right amount for investors in their 20s and 30s is typically between 5-15% depending on your comfort with risk.
Mistake #4: “Buying Gold Eliminates All Third-Party Risks”
While physical gold removes some risks associated with depending on financial institutions, it creates other problems that many young investors don’t consider:
- Risk of theft
- Problems with proving authenticity
- Concerns about storage facility security
- Transportation risks
- Possible government seizure (which happened in 1933)
Smarter approach: Spread your risk by having different types of gold investments (some physical, some ETFs) and investing in different asset classes altogether.
Mistake #5: “Gold Mining Stocks Are Just Gold with Extra Growth”
A common gold investment millennials mistake is assuming gold mining companies simply magnify gold price movements. In reality, mining stocks are affected by many other factors:
- How well the company is managed
- Production costs
- Success or failure in finding new gold
- Political risks in mining locations
- Environmental rules
- Company debt levels
From 2011-2015, gold prices fell about 40%, but many mining stocks dropped 70-90%—showing how different these investments can be.
Smarter approach: If you want exposure to mining companies, consider low-cost index ETFs like GDX rather than picking individual mining stocks, and keep these investments relatively small.
Mistake #6: “Gold Will Protect You During Market Crashes”
While gold sometimes acts as protection during financial crises, the facts show a more complicated reality:
- 2008 Financial Crisis: Gold initially fell 30% with stocks before recovering
- COVID-19 Crash (March 2020): Gold dropped 12% alongside stocks when everyone was selling assets for cash
- 1987 Black Monday: Gold barely moved despite a 22% one-day stock market crash
Smarter approach: Use gold as just one part of a safety net that includes cash, short-term bonds, and other investments that don’t move in lockstep with the stock market.
Mistake #7: “More Gold Means More Safety”
The final gold investment millennials mistake is having too much gold. Even if you strongly believe in gold’s benefits, financial theory shows that allocations above 20% typically reduce your returns without adding much safety. For investors under 40 with decades until retirement, too much gold can significantly reduce how much wealth you build.
Smarter approach: For most people in their 20s and 30s, keeping 5-10% in gold gives nearly all the diversification benefits without dragging down your overall growth. You can adjust this amount during times of serious economic uncertainty.
A Balanced View of Gold
Gold deserves a place in most investment portfolios, but avoiding these gold investment millennials mistakes is crucial for long-term financial success. By treating gold as one tool among many—rather than a perfect solution—younger investors can get its real benefits while avoiding its limitations.
Remember that successful investing rarely means finding the “perfect” asset, but rather building a diverse portfolio that matches your time horizon, comfort with risk, and financial goals.
Take Action
Ready to improve your gold investments? Start by checking how much gold you currently own, comparing different ways to invest in gold based on costs and convenience, and making sure your gold strategy fits with your overall financial plan. For personalized advice, consider talking with a fee-only financial advisor who can help fit gold appropriately into your overall wealth-building strategy.