Adding gold ETFs to your portfolio can be a way to diversify risk, or it can be a hedging strategy. Gold can be used as a hedge against inflation, a downturn in stock prices, or a decline in currency values – especially the US dollar.
Gold Investment Funds and ETFs
When you invest in gold funds, you are not investing directly in gold itself. The most common way to buy gold directly is by purchasing pure gold coins. The most common way to invest in gold as an investment tool is through an exchange-traded fund (ETF), such as SPDR Gold Shares (GLD).
Note: Mutual funds invest little or not at all in actual gold. They often hold shares of mining companies.
Gold Investment Funds or Gold ETFs?
You can invest in ETFs that are exposed to gold, such as pure gold, or through trading in futures contracts if you want to invest in a manner that tracks its prices. Mutual funds often invest in companies that mine gold. The difference between these two types of funds is that a mutual fund will move with the market and the value of the company, while an ETF will move with the value of gold.
Note: An ETF may have lower fees than another fund, and the same can be said for mutual funds.
Gold as a Hedging Strategy
Investors have concerns about the devaluation of the US dollar. The federal government is pumping more money into the economy to stimulate it due to a large deficit, but the more currency that is in circulation, the less valuable it becomes. Investors are putting more money into gold as a safer alternative when fears about the value of the dollar increase.
Note: Hedging refers to reducing the risk of losing money. A hedging strategy is a plan for the investor to minimize the impact of losses.
Advantages of Investing in Gold
The primary advantages of investing in gold stem from its status as a stable asset. There is strong global demand for gold. Therefore, its price moves up and down in the short term, but it often increases in value in the long term, although it does not correlate directly with stock prices. It is often considered a stable-value investment.
Gold is a very liquid asset. You can easily convert it into cash or other investments if needed. Investors tend to turn to precious metals during investment crises because gold often retains its value during those times. For this reason, gold has become a diversification strategy for many investors.
Conclusion
Ultimately, it comes down to what you need and want for your portfolio. You can allocate a portion to gold funds if you need to hedge against falling stock prices. You can invest in physical assets if you wish to hedge against a deteriorating economy. Your risk tolerance should guide your choice. It won’t hurt to have both.
Gold should not be used as a timing tool or as the sole means for all your savings. The price of gold can fluctuate significantly. The average long-term return on gold investments is around 3%, which is much lower than the return of most equity funds in the S&P 500. A good allocation ratio for gold funds for most investors is around 5%.
Frequently Asked Questions (FAQs)
Which is better, physical gold or gold investment funds and ETFs?
There are pros and cons to investing directly in physical gold. Some investors prefer the security of holding physical gold and storing it in a safe place they can access at any time. However, physical gold is harder to trade, and you will pay higher fees. Gold funds allow you to jump in and out of gold investments with the click of a button and at lower fees.
What
What determines the height of gold mutual funds?
Gold prices are subject to supply and demand. On the demand side, prices will rise as more investors feel the need to hedge with gold. On the supply side, mining too much gold quickly can lead to downward pressure on gold prices.
Was this page helpful?
Thank you for your feedback! Please let us know why.
Sources:
VanEck. “VanEck Vectors Gold Miners ETF.”
Fidelity. “Invesco Gold and Special Minerals Fund.”
Source: https://www.thebalancemoney.com/how-to-invest-in-the-best-gold-funds-and-etfs-2466835
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
}.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
};
}
Leave a Reply