Why long-term wealth is built through compounding, not the illusion of safety

Gold, Equities, and the True Store of Value

Gold’s reputation as a store of value is deeply ingrained. Yet, for all its historical allure, its role in building long-term wealth is difficult to justify. While gold may offer protection in periods of stress, it lacks the fundamental drivers of wealth creation. Equities, by contrast, generate earnings, reinvest capital, and compound over time. The difference in outcomes is not marginal, it is structural.

By Oliver Müller, Chief Investment Officer, Accresco Investment Management

The Enduring Allure of Gold

Gold’s appeal is easy to understand. In times of inflation, currency debasement, or geopolitical instability, it offers a sense of permanence. It is scarce, liquid, and carries no credit risk. For many investors, it represents financial security in its purest form.

But this perception obscures a more complex reality. Gold can play a role as a tactical hedge, particularly during periods of systemic stress. What is far less clear is its suitability as a core holding in portfolios designed to build wealth over time.

A hedge, by definition, protects. It does not compound. Insurance may preserve capital in moments of crisis, but it does not create it. The primary objective of investing – sustained growth in purchasing power – requires something more than preservation.

An Asset Without an Engine

The divergence between gold and equities ultimately rests on a simple distinction: one produces, the other does not.

Gold generates no income, pays no dividends, and reinvests nothing. Its value is determined largely by what the next buyer is willing to pay for it. As such, its price is driven predominantly by sentiment.

Equities represent ownership in businesses. Those businesses generate profits, reinvest capital, innovate, and expand. Over time, this process compounds. Assets that produce tend to outperform those that are merely priced.

The long-term data reflects this clearly. Between 1975 and 2025, the S&P 500 delivered average annual returns of 12.4% in nominal terms, or 8.4% after inflation. Gold returned 6.4% nominally and just 2.6% in real terms.

A Conditional Store of Value

Proponents of gold often argue that such comparisons miss the point – that gold’s purpose is not to generate returns, but to preserve wealth, particularly in times of crisis. There is merit in this argument. Gold has historically performed well when confidence in financial systems deteriorates.

Yet as a long-term store of value, the evidence is less compelling. Across rolling periods, equities have delivered more consistent real returns, especially when dividends are reinvested. Over fifteen-year horizons, they have reliably preserved – and grown – purchasing power, which hasn’t been the case for gold.

Gold’s performance, by contrast, has been more erratic, with extended periods of stagnation or decline in real terms. Its ability to preserve value is therefore conditional rather than dependable.

The Path Matters

This inconsistency reflects the nature of gold itself. Its returns are highly path-dependent.

Periods of sharp appreciation have often been followed by prolonged drawdowns, driven by shifts in sentiment, inflation expectations, and geopolitical dynamics. These cycles can persist for years, even decades.

For an asset widely perceived as stable, this introduces a notable vulnerability: outcomes depend heavily on timing. Entry and exit points matter far more than they do for assets with an underlying growth engine.

Equities, while volatile, are anchored by the productive capacity of the businesses they represent. Their recoveries are not solely sentiment-driven, but supported by earnings growth and capital reinvestment.

Rethinking Volatility

Gold’s reputation for stability is, in part, a matter of perception. In practice, its price has often been more volatile than equities – without offering superior returns.

This creates a paradox: an asset widely regarded as defensive has historically been both more erratic and less rewarding.

Equities, by contrast, combine volatility with growth. While market prices fluctuate, the underlying businesses continue to generate value. Over time, this enables not only recovery from downturns, but meaningful compounding beyond them.

Volatility, in this context, is not synonymous with risk. Without an engine, it merely oscillates. With one, it becomes part of the compounding process.

Resilience Through Crises

This distinction becomes clearer in periods of crisis.

Equities are often labelled “risky” because their volatility is visible and immediate. Yet history suggests a more nuanced conclusion. Across wars, financial crises, oil shocks, and pandemics, equities have compounded real wealth at roughly 7% per annum over the long term.

This resilience reflects the adaptive nature of businesses. Companies respond to adversity – cutting costs, reallocating capital, innovating, and consolidating. What appears fragile in the short term often proves flexible over time.

Equities fall, sometimes sharply. But they recover – because the underlying engine remains intact.

The Power of Compounding

The defining advantage of equities is compounding.

A $100 investment in U.S. equities in 1928 would have grown to more than $1.1 million by 2025. Other asset classes remain orders of magnitude behind. In the case of gold, for example, an equivalent investment would have grown to only around $21,000. This disparity is not the result of timing or luck, but of structure.

Compounding is inherently exponential. Businesses generate returns, reinvest those returns, and in doing so create a self-reinforcing cycle of growth. Over time, the results become disproportionate to the initial capital invested.

Equities do not merely preserve wealth – they multiply it.

Staying the Course

This does not imply a smooth journey. Drawdowns are an inevitable feature of equity investing.

The challenge lies not in avoiding them, but in remaining invested through them. Periods of decline test discipline, often at precisely the wrong moment. Yet long-term success is determined less by prediction than by participation.

Attempts to time the market are particularly costly. Missing even a small number of the market’s strongest days – often clustered around its weakest – can significantly erode returns. Investors who exit during periods of stress frequently forgo the subsequent recovery.

Over longer horizons, the pattern is clear: equities have delivered positive returns across nearly all ten-year and longer holding periods. Time, more than timing, transforms uncertainty into reliability.

Where Compounding Resides

Not all equities, however, are equal.

Broad market exposure provides access to long-term growth. But the most powerful compounding tends to reside in high-quality businesses – those with durable competitive advantages, strong cash generation, disciplined capital allocation, and resilience across cycles.

These are the companies that do not merely participate in economic growth, but shape it.

The True Store of Value

Gold retains a role, but a limited one. In periods of acute uncertainty, it can serve as a hedge –  and, importantly, as a source of psychological reassurance when confidence falters.

But these attributes are episodic, not structural.

Long-term wealth creation requires assets that do more than hold value. It requires assets that build it. Equities – particularly those of high-quality businesses – fulfil this role. They generate earnings, reinvest capital, and compound over time. Gold does not.

This distinction is fundamental. An asset that cannot grow may preserve wealth in moments, but it cannot create it over generations.

In the end, the choice is not simply between assets, but between outcomes: preservation or progress.

Gold protects. Equities compound.