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The price of gold continues to break new records, but I prefer to play with the current geopolitical uncertainty by buying FTSE 100 companies in a stocks and Shares ISA. They offer me three things that gold cannot.
Gold can be a great investment. The price has risen a staggering 287% in the last 20 years as it feeds off economic and geopolitical uncertainty. I would gladly put 5% (or if necessary, 10%) of my portfolio in the yellow metal, to diversify my stock holdings.
However, I wouldn't buy it right now as it looks potentially overbought after rising 20% in a year to almost $2,400 an ounce. Furthermore, the true value of gold is impossible to measure, given the lack of practical uses. It's just a play on investor sentiment.
All these companies shine
Instead, I can use a series of measures to decide whether an action like NatWest Group (LSE: NWG) is good value for money. The simplest is the price-to-earnings ratio, which shows it is trading at 5.5 times earnings. A figure of 15 represents fair value, so it looks cheap. A price-to-book ratio of just 0.6 is also tempting. A figure of one is considered fair.
Being cheap is not everything. NatWest shares have struggled since the financial crisis. They have increased only 0.36% over the last year. However, they are up 30% in the last three months, after the group reported a 20% rise in 2023 pre-tax profits.
Bank stocks can be volatile and net interest margins could shrink if interest rates fall. But with a dividend yield of 6.23%, NatWest tempts me.
Which brings me to the second drawback of gold. It does not generate any income. By contrast, the FTSE 100 is packed with high-performing stocks, including insurers. Legal and General Group (LSE: LGEN). It is expected to return 8.57% this year and 9.05% in 2025.
L&G appears to be a good value trading at 11.1 times earnings, but again, the shares have performed poorly, falling 13% in five years and flat in one year.
Distressed stock markets have affected L&G's asset management operations. It could continue to wobble until we make a full recovery. In the meantime, I will continue to invest those dividends to increase my holding until the recovery finally comes.
This way I get income and growth.
Although the price of gold can soar, it can also fall and remain low for years. Of course, stocks can also be volatile, but some less than others. Electricity and gas company National Network (LSE:NG), for example. It is a monopoly and its profits are regulated and therefore it is much more reliable than most.
The stock currently yields 5.5% annually and has a brilliant track record of increasing dividends every year for the past 20 years. It is not completely risk-free. Maintaining the electricity grid and financing the green transition is enormously expensive. National Grid plans to spend £42bn by 2026. It also had net debt of £44.3bn at last count.
The share price is down 9.95% for the year, but I think that reduces downside risk and the current valuation of 15.85 times earnings looks like a good entry point. Hopefully, these three FTSE stocks could provide me with a combination of long-term growth and income.
