The rising gold price over recent months may mean that many investors see it as a sound means to make a million. After all, with the world economy's outlook being uncertain, gold's popularity could continue to rise among increasingly risk-averse investors.
However, over the long run, dirt-cheap shares could offer higher returns than the precious metal. The stock market's track record of recovery means that buying undervalued stocks may be a means of obtaining high capital returns in the coming years.
As such, now could be the right time to build a diverse portfolio of bargain stocks instead of purchasing gold.
Gold's prospects
Gold's strong performance since the start of the year means that it may be increasingly seen as a means to make a million by investors. However, its recent price rise may not continue uninterrupted over the long run.
The precious metal has historically been highly popular during periods of low interest rates, when income-producing assets have less appeal on a relative basis. Furthermore, gold is seen as a store of wealth by many investors, which is a key reason why its price has spiked in recent months in response to a downgrade in the global economy's growth forecasts.
However, over the long run the world economy's performance is likely to improve. This could lift investor sentiment, and may encourage investors to focus their capital on riskier assets such as equities. Eventual rises in interest rates may also reduce demand for gold, which could mean that its capacity to deliver further strong price rises in the coming years is somewhat limited.
Stock market valuations
While the price of gold has risen close to record highs so far in 2020, investors aiming to make a million from the stock market have been highly disappointed. However, the wide margins of safety available across many sectors of the stock market could provide an opportunity to generate high returns in the long run.
The stock market has an excellent track record of recovering from its various downturns to produce new record highs. Sometimes this can take a number of years. However, as the economic outlook gradually improves, investors are likely to become more bullish about the prospects for riskier assets such as equities. This could mean that the stock market offers substantial long-term growth potential from its current price level, with many of its members appearing to offer good value for money after their recent declines.
Building a portfolio
As such, buying a diverse range of stocks could be a sound means of generating high returns over the long run. They may not outperform lower-risk assets such as gold in the short run, but may prove to be a more likely means to make a million over the coming years as the economic outlook improves and investor confidence is restored.
