With the stock market still in the process of recovering from the recent correction, cheap shares continue to hide in plain sight. Yet since the start of 2024, some don’t appear to be moving in the right direction. In fact, a quick glance at the FTSE 250 reveals that British mid-cap companies have actually fallen by around 2.5%.
Gold seems to have a similar problem. Despite being a popular destination of investor wealth, the shiny yellow metal has seen a similar contraction in value year-to-date. And a question brewing in a lot of investors’ minds is which investment vehicle will outperform throughout 2024 and beyond?
The bull case for gold
While the price of this precious metal appears to be in line with the British stock market so far this year, that’s not actually the case. Why? Because something that isn’t captured in the FTSE 250’s price chart is the impact of dividends that have pushed the total stock market return into the black. But will that eventually change?
Gold has a proven track record of being a solid store of value. It’s been especially useful in preserving wealth from the horrors of recent inflation. And while the devaluation of currencies is starting to cool off, there are still many bull cases for protecting capital today.
Conflicts in Eastern Europe and the Middle East may continue escalating. And with tensions between China and Taiwan also on the rise, disruptions to critical trade routes and potential further conflict don’t exactly breed ideal operating conditions for businesses.
So, does gold win? Not necessarily.
The bull case for cheap shares
Macroeconomic issues have been stealing most headlines within the stock market lately. After more than a decade of near-zero interest rates as well as relative stability worldwide, investors have had to adjust expectations quite drastically in light of recent tragic developments.
We’ve already seen this in the form of the painful 2022 stock market correction. And while things have started to improve lately, there’s still the risk of another spanner being thrown into the works. Having said that, this storm has also created an exciting amount of opportunity.
The short-term performance of even cheap shares remains uncertain. Yet for the top-notch companies, contingency plans have already been put in place in the event of further disruption. And in many cases, firms are busy building up chunky cash reserves as well as paying down debt in preparation for another potential storm.
As such, the long-term outlook for these high-quality enterprises continues to look promising, especially for those still trading at a significant discount.
To me, despite the short-term headwinds, cheap shares look like the better investment choice today. Gold may still have an important role to play in a portfolio, depending on the objectives and risk tolerance of an investor. However, as someone seeking to maximise growth, the stock market has a far better long-term track record of building wealth versus gold’s reputation of preserving it.
