Investing in physical gold can be a challenge for investors who are more used to trading stocks and bonds online. When it comes to physical gold, you'll usually interact with traders outside traditional brokerage agencies and you'll likely have to pay for storage and get insurance for your investment. The three main options for investing in physical gold are ingots, coins and jewelry. Gold ETFs offer investors exposure to gold by monitoring changes in gold prices.
This allows investors to benefit from changes in the price of gold without having to own the physical asset. Since this means buying stocks from gold mining companies, you can invest using your brokerage account. Depending on your preferences and ability to assume risk, you can choose to invest in physical gold, gold stocks, gold ETFs and mutual funds or speculative futures and options contracts. While you probably want to buy ETFs that actually hold physical gold, there are funds that invest in companies in the gold industry, often gold mining stocks or gold streaming companies that offer funding to gold miners.
This means that the value of mutual funds and ETFs in gold may not fully match the market price of gold and that these investments may not perform as well as physical gold. Investing in the shares of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold. While the recommendation to include gold in a portfolio depends on the objectives of each individual investor, the intermediate view is that a small percentage of gold should be allocated to the portfolio to benefit from diversification. Gold is considered a “safe haven asset” because when the prices of other investments, such as stocks or real estate, fall sharply, gold doesn't lose its value.
Gold mutual funds, which pool the money of several investors and manage it on their behalf, usually invest in the shares of mining or gold refining companies, although some also have small amounts of ingots. Buying gold mining stocks is relatively simple, through a brokerage account with an online broker or investment application. Investing in gold ETFs and mutual funds can expose you to the long-term stability of gold while offering more liquidity than physical gold and more diversification than individual gold stocks. Gold mutual funds, such as the Franklin Templeton Gold and Precious Metals Fund, are actively managed by professional investors.
Because gold is volatile in the short term and may lag behind stocks in terms of long-term price appreciation, financial advisors usually recommend investing no more than 10% of your savings in gold. The most controversial criticism of gold is that gold is quite volatile for an investment that is generally considered a safe haven. Instead of investing in a mutual fund, you can also buy shares of gold mining companies (often referred to as gold stocks) directly. Alternatives to investing in gold include buying shares in gold mining companies or gold exchange-traded funds (ETFs).