Which Gold Investment is Best?
Dependent upon your resources and risk tolerance, investing in gold can include investing in physical gold bars or shares of gold mining or refining companies as well as futures contracts. ETFs and mutual funds that track gold prices provide newcomers an easy entry point into this regulated market.
Physical gold purchases incur additional storage costs and limit liquidity, so experts advise avoiding direct investments in gold.
Investors looking for gold without the hassle of receiving and storing physical pieces have another option available to them: gold-backed exchange traded funds (ETFs). These paper assets trade like stocks and closely follow gold’s price; popular examples of ETFs such as SPDR Gold Shares ETF cost only 0.40% annually to own while VanEck Vectors Junior Gold Miners ETF has greater upside potential by investing in smaller mining companies that may still be exploring or in need of expanding production capacity.
However, these investments come with all of the risks associated with stocks or mutual funds and most financial advisors advise only allocating up to 10% of your portfolio to gold investments. No matter which way you approach gold investing, success lies in understanding your investment goals and risk tolerance; for some investors this could mean using it as a short-term hedge against volatility or to generate passive income – both factors making gold attractive additions to retirement plans.
Gold mining stocks offer an inexpensive way to invest in precious metals. Companies like Franco-Nevada specialize in extracting gold from underground deposits and selling it on the market at rising gold prices and reduced costs, creating profits from rising sales volume while mitigating costs over time. Such stocks tend to outshone gold prices over time.
Stock market-linked stocks tend to be more volatile than physical bullion funds, such as GLD. Over the course of 2016, both GDX and RING saw significant losses to the S&P 500 while GLD experienced impressive gains.
Individual gold-related stocks tend to carry greater operating risks and be more costly to buy than broad market index funds, so as a general guideline it is wise to allocate no more than 10% of a portfolio to individual stocks.
Gold bullion investments have long been popular for investors seeking diversification and protection against inflation and geopolitical volatility. Gold also represents an effective way of adding value to an investment portfolio, though its returns don’t compare directly with stocks.
There are multiple methods available to investors who wish to acquire physical gold bullion. Coins and bars from trusted dealers may be purchased directly, while investing in exchange-traded funds (ETFs) or mutual funds that own physical gold can also provide access to physical bullion investments. While ETFs offer convenience in buying and selling quickly, their expense ratio could reduce returns over time.
Investors can gain exposure to the price of gold by investing in mining companies. Stocks from such firms typically correspond with its price, although their operating risks could alter this correlation. Furthermore, investors can purchase gold futures or options contracts, though these investments require greater sophistication due to their high degree of volatility.
Gold futures are standardized contracts that specify an amount of gold to be bought or sold at a certain point in time in the future. Investors can trade them through commodity brokers without incurring initial costs associated with physical gold bullion purchases such as insurance premiums and storage charges.
However, unlike ETFs and mutual funds that invest in gold, futures obligate investors to purchase the underlying metal at its contract price; should you lose money, it can be expensive to top up your margin. These risks, combined with having to actively monitor their position and rollover the contracts when they expire make gold futures more suitable for experienced investors.
Precious metals like gold and silver are an invaluable way to diversify your portfolio, helping reduce overall volatility. Learn how to incorporate precious metals with Q.ai’s Precious Metals Kit which provides low-cost exposure to gold as well as weekly risk-adjusted rebalancing.
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