Gold, the precious metal that has been making people rich for centuries, is becoming increasingly important in an increasingly turbulent stock market. This is because Gold is known for being a recession-friendly investment. When the stock market takes a dip, the value of gold tends to increase.
Gold is known for being the standard of wealth and prosperity but has taken the backseat in recent years with the advent of cryptocurrency and democratized investing. This is partly due to its lackluster performance when compared with other growth vehicles. From the year 1990 to 2020, the price of gold increased by around 360%. While the Dow Jones Industrial Average (DJIA) gained 991%.
So, is gold an important asset today? If so, how does one invest in gold? This article will cover that and more.
Believe it or not, there are multiple ways to purchase gold that don’t include heading down to your local pawn shop. There are several financial instruments that give you access to gold without requiring you to physically carry solid blocks of gold. While that is still a viable option, you should be aware of all the options that exist. These options range from investing in individual company shares to purchasing fine jewelry and gold 'bullions'.
Whatever option you choose, understand there are inherent risks with every option.
Purchasing gold can be as easy as purchasing shares of a company’s stock on a classic brokerage app such as Robinhood or Webull. Public companies that mine gold will provide you with exposure to the price of gold without lugging around safes full of this precious metal.
To purchase shares in gold stocks, simply understand what stocks are out there and how they can help you hedge against market volatility. Then enter into your brokerage account, locate the stock, and purchase. Investing in gold really can be as easy as investing in any average public company operating in the gold industry.
Mutual funds and ETFs are famous for allowing investors to have a large range of options when it comes to investing. These investment products permit users to benefit from experts who pick and choose what companies will receive investment.
There are a variety of gold ETFs and mutual funds that offer exposure to gold as a commodity or in mining companies themselves.
The beauty of mutual funds and ETFs is this is all decided by an expert, not you. The only research you need to do is knowing what mutual fund or ETF is right for you and leave the rest to the professionals.
When it comes to gold funds, you can find funds that focus on companies that mine or process gold. This can be a great way to hedge against the risk of having your physical gold stolen or misplaced.
Futures are common among commodities and allow investors to make decisions based on the future worth of a product. For instance, if you believe the price of gold will increase in the future, you can purchase a futures contract which is an agreement to buy (or sell) a certain amount of gold at a certain date in time.
This is inherently risky because the purchaser of the contract is obligated to fulfill their end of the agreement. Unlike options, which afford the user the option to execute the contract or not, futures must be fulfilled.
Futures are also treated with increased risk because they can be much more damaging than anticipated. Users can lose more than they originally invested with futures. Therefore, futures are often not a suitable solution for novice or inexperienced investors.
Although there are no management fees for gold futures, there are often trade fees or commissions. Keep this in mind before you decide to jump into selling or buying futures.
The most known way to invest in gold is to simply own some. Perhaps you have grandparents that have invested in gold ‘bullions’ and swear by it. While this seems simple enough, there is quite a lot of research that you should undertake to protect your investment in physical gold.
The first step is to find a reputable and trustworthy dealer. We have all heard the sad stories of fraud that occurs with physical products, and none of us want to fall victim. By using consulting resources from the National Futures Association, you can be assured that you are working with a qualified and trusted broker.
Second, you will want to understand what types of fees are involved in purchasing physical gold. In purchasing this physical commodity, you will be paying more than just the price of the gold itself. Merchants will charge fees above and beyond the spot price.
Storage is the third step in this process and is perhaps just as important as working with a qualified broker. You will want to be sure that your gold is secure and out of reach of others. To do this, you can often secure a safety box at a bank or purchase your own safe that you keep at your home. Whatever you choose, be cautious about who knows the gold’s whereabouts and how to access it.
Finally, to safeguard this, consider purchasing insurance which will indemnify you in case of theft or damage. Understand that this will add to the overall cost of owning gold.
While many have touted the importance of investing in gold to diversify your portfolio, you need to do the research on your own. There are many advantages and disadvantages to investing in this precious metal and there are wise ways to go about it.
Allowing experts to take charge through mutual funds or ETFs is a great way to do this if you are hands off. If you are hands on, literally, then purchasing physical gold is your best route. Whatever path you choose, know the inherent risks of gold. While it may be a safe haven when the markets get rough, it hasn’t performed as consistently as the stock market. Understanding this important fact can help you make a more informed decision when it comes to investing in gold.