How do You Invest in Gold?
One great way of diversifying the portfolio and guarding your wealth is through investment in the gold market. Since its discovery, gold has always remained a trusted form of investment because it has held its value over such a long period. But, How do you invest in gold?
Here are the most popular ways to invest in gold and what you should do to get started.
Buy Physical Gold
One direct way people have been investing in gold is to buy physical gold.
Gold Bars: Pure gold bars are sold in greater weight so by smaller ounces. This makes it cheaper to buy and hold than the small items.
Gold Coins: Many investors and collectors love gold coins because they are not only attractive but also easy to sell or trade.
Jewellery: Although investment in gold jewellery involves parting with some amount of money, the overall costs relating to design and crafting are regained on that.
Benefits
A physical asset that you can hold.
No reliance on digital networks.
Gold bars and coins can be sold at will anywhere in the world.
Drawbacks
Storage and security costs.
Not very liquid when compared to other investment types.
Chances of theft if not kept safe.
You can buy physical gold in the form of gold bars and coins from a reputable dealer. Do check that dealer's reputation and credentials. Other sources include online trading sites, physical stores, and banks.
Read more: How to buy and sell gold jewelry for profit?
Gold ETFs
Gold ETFs are another excellent investment vehicle in gold without investing in physical gold. To invest in a share of gold ETF, you are buying a small portion of a fund that owns gold or is tied to the price of gold. This way, you can make money by the price of gold without having to own any physical gold.
Pros
Extremely liquid and can be purchased or sold during market hours.
No need to worry about storage or security.
Often comes with lower fees compared to other gold investments
Disadvantages
Subject to market hours and slightly deviates from the true price of gold.
Some ETFs charge management fees.
You are not an owner of physical gold as that is usually a con for those on the lookout for tangible assets.
You need a brokerage account to buy gold ETFs. Do your research and find many different available gold ETFs that can be compared in terms of performance, fees, and other details, and then you'll make your investment through your brokerage.
Gold Mining Stocks
You can indirectly invest in gold by buying shares in gold mining companies.The shares in gold mining companies at times may run ahead of the gold price itself. The advancement of price in gold increases the profitability of a mining company and also increases the value of its shares accordingly.
Pros
High returns when the company is well managed and the price of gold increases.
The company usually pays dividends providing an income stream.
Cons
High risk in case of problems in the industry such as production-related issues, and geopolitics-related issues.
These stocks also do not rely solely on the hike of gold prices but also on the profitability of the company.
Choose companies that produce gold, which have a high reputation and prudent management and operating stability. You can buy shares through any standard brokerage account.
Read more: Are gold nuggets pure gold?
Gold Mutual Funds
It combines physical gold, gold ETFs, and gold mining stocks. This way, you're diversifying within the gold market itself. Investing in a gold mutual fund allows you to buy a diversified portfolio of gold-related securities. This will reduce the risk that's tied to any single investment.
Advantages
Managed by professionals who understand the market.
Has diversified exposure to gold through several assets.
Cons
Often charges management fees.
Has no control over specific holdings in the fund.
You open a brokerage account or seek the help of a financial advisor to invest in a gold mutual fund. Compare various funds, their past performance, and fees, and other costs.
Gold Futures and Options
For experienced investors, gold futures and options offer another route to invest. These contracts enable investors to wager on the future price of gold. A gold futures contract permits you to buy or sell at a set price on a future date; while options provide investors with an obligation (but no right) to do so at a specific price on or before certain dates.
Advantages
Big profit with price fluctuations.
They can give you leverage so that you can control large amounts of gold with smaller starting investments.
Disadvantages
Highly risky and only for sophisticated investors
Losses exceed the initial investment.
For gold futures and options trading, opening an account with a broker is mandatory. Due to its technical nature, however, financial advice from an advisor would also be recommended before investing.
Read more: what is scrap gold worth?
Which Type of Gold Investment is Right for Me?
So, How do you invest in gold? - There are varying investments in gold, each with its benefits and drawbacks. The newcomer can start with gold ETFs or physical gold. A seasoned investor may prefer gold mining stocks or futures. Gold investment means stable and predictable assets within your portfolio. Take time out to be familiar with your tolerance levels, your investments, and what makes you feel comfortable with each method as you make up your mind.
