Investing in gold, silver, and other precious metals is one way to diversify your portfolio. When stocks aren’t doing well, gold often rises in value, which can help offset losses in your stock holdings.
It’s important to be aware that there are never any guarantees however, and all investments come with a risk attached.
Why Own Gold?
Having a small portion of your portfolio invested in gold and other precious metals can sometimes help hedge your portfolio against stock market losses.
A few reasons to own gold and precious metals include a weakening U.S. dollar, inflation and deflation worries, and geopolitical concerns. During worrisome times, people might turn to gold, causing its price to increase.
Gold Exchange-Traded Funds
Exchange-traded funds (ETFs) are one way to own gold without physically owning the metal. Owning it this way reduces the transaction costs, and you don’t have to worry about storing it. Gold holding ETFs are another option to hedge a portfolio, as when stock prices drop, gold ETFs can sometimes increase.
Buying shares of these gold exchange-traded funds cost less than buying ounces of gold outright. This is because you’re tracking the price of gold, not taking physical ownership. Buying and selling gold ETFs is as easy as selling any stock through a broker.
Gold Closed-End Funds (CEFs)
A closed-end fund is similar to a mutual fund, but there are differences. A CEF can trade at a discount or premium to its net asset value (NAV). The main advantage is that they can pay a higher distribution when compared with gold ETFs or mutual funds. It’s advisable to do your research and become familiar with closed-end funds before investing in them.
Gold Mining Stocks and ETFs
Another way to invest in gold and precious metals is to buy stocks of gold mining companies. You can buy individual gold mining stocks or invest in gold mining ETFs. Gold mining ETFs will have a basket of various gold mining companies, which is more diversified and can protect you from a major loss if one company should get bad news.
In addition to the more senior gold mining companies, you can buy junior gold mining stocks. They are less established companies with a focus on exploration and are more speculative. Gold mining stocks are sometimes more volatile in price movement as compared to the spot price of gold.
Gold IRAs
A gold IRA is also known as a precious metals IRA. This specialized individual retirement account allows you to invest and hold physical gold or other precious metals in an IRA. A gold IRA can be set up pre-tax or post-tax.
Self-directed IRA holders can purchase gold, silver, platinum, or palladium coins, bars, and other approved physical forms of precious metals. These IRAs can also hold precious metal ETFs and stocks, but it is primarily for investing in physical forms of precious metals.
Coins and Bars
You can buy precious metals in the form of coins and bars. When buying gold coins, it can be best to stick with the most popular gold or silver coins. With gold bars, there isn’t much of a decision, as long as it is through a reputable mint such as Perth Mint in Australia, or Royal Canadian Mint to name a couple of examples.
There are associated fees when buying gold coins like markups, transaction fees, storage, and insurance fees, and sometimes taxes. Coins will cost more than gold bars. And coins can have numismatic value also, adding even more to the price of the coin over the spot price of gold.
Coins like the South African Krugerrand or American Eagle are two well-known coins that can easily be bought and sold. Coins can be bought in varying amounts like half an ounce, one-quarter ounce, and smaller units of gold. The smaller amount you buy, the higher the premium might be.
When you buy gold bars, you should buy 99.5% pure gold. Gold bullion bars should feature the name of the manufacturer, its weight, and purity stamped on it.
