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The information on this site does not modify any insurance policy terms in any way. When economic times get tough or the stock market looks jittery , investors often turn to gold as a safe haven. Savers and investors like gold for many reasons, and it has attributes that make the commodity a good counterpoint to traditional securities such as stocks and bonds. One of the more emotionally satisfying ways to own gold is to purchase it in bars or in coins.
One of the largest drawbacks is the need to safeguard and insure physical gold. This is in contrast to owners of a business such as a gold mining company , where the company can produce more gold and therefore more profit, driving the investment in that business higher.
A pawn shop may also sell gold. The second-biggest risk occurs if you need to sell your gold. So you may have to settle for selling your holdings for much less than they might otherwise command on a national market. Certified coins have been tested to insure they are real gold. You can find a state-by-state list of dealers for U. Eagles and Buffalo coins using the U. Mint's Dealer Locator link below.
The American Numismatic Association also maintains an online dealer listing of reputable coin dealers. Buy gold coins directly from the U. Mint online link below. You need to create an account with the U. Mint just as you would with any other online vendor.
Even experienced investors should think twice here. Essentially, a futures contract is an agreement between a buyer and a seller to exchange a specified amount of gold at a specified future date and price. As gold prices move up and down, the value of the contract fluctuates, with the accounts of the seller and buyer adjusted accordingly. Futures contracts are generally traded on exchanges, so you'd need to talk to your broker to see if it supports them.
The biggest problem: Futures contracts are usually bought with only a small fraction of the total contract cost.
This creates leverage, which increases an investor's potential gains -- and losses. And since contracts have specific end dates, you can't simply hold on to a losing position and hope it rebounds.
Futures contracts are a complex and time-consuming investment that can materially amplify gains and losses. Although they are an option, they are high-risk and not recommended for beginners.
One major issue with a direct investment in gold is that there's no growth potential. An ounce of gold today will be the same ounce of gold years from now. That's one of the key reasons famed investor Warren Buffett doesn't like gold -- it is, essentially, an unproductive asset. This is why some investors turn to mining stocks. Their prices tend to follow the prices of the commodities on which they focus; however, because miners are running businesses that can expand over time, investors can benefit from increasing production.
This can provide upside that owning physical gold never will. However, running a business also comes with the accompanying risks. Mines don't always produce as much gold as expected, workers sometimes go on strike, and disasters like a mine collapse or deadly gas leak can halt production and even cost lives. All in all, gold miners can perform better or worse than gold -- depending on what's going on at that particular miner.
In addition, most gold miners produce more than just gold. That's a function of the way gold is found in nature, as well as diversification decisions on the part of the mining company's management. If you're looking for a diversified investment in precious and semiprecious metals, then a miner that produces more than just gold could be seen as a net positive.
However, if what you really want is pure gold exposure, every ounce of a different metal that a miner pulls from the ground simply dilutes your gold exposure. Potential investors should pay close attention to a company's mining costs, existing mine portfolio, and expansion opportunities at both existing and new assets when deciding on which gold mining stocks to buy. Both also have exposure to other metals, but the latter focuses on smaller miners; their expense ratios are 0.
As you research gold ETFs , look closely at the index being tracked, paying particular attention to how it is constructed, the weighting approach, and when and how it gets rebalanced. All are important pieces of information that are easy to overlook when you assume that a simple ETF name will translate into a simple investment approach.
Investors who prefer the idea of owning mining stocks over direct gold exposure can effectively own a portfolio of miners by investing in a mutual fund. This saves the legwork of researching the various mining options and is a simple way to create a diversified portfolio of mining stocks with a single investment.
There are a lot of options here, with most major mutual fund houses offering open-end funds that invest in gold miners, such as the Fidelity Select Gold Portfolio and Vanguard Precious Metals Fund. However, as the Vanguard fund's name implies, you are likely to find a fund's portfolio contains exposure to miners that deal with precious, semiprecious, and base metals other than gold.
That's not materially different from owning mining stocks directly, but you should keep this factor in mind, because not all fund names make this clear.
For example, the Fidelity Select Gold Portfolio also invests in companies that mine silver and other precious metals.
Fees for actively managed funds, meanwhile, can be materially higher than those of index-based products. You'll want to read a fund's prospectus to get a better handle on its investing approach, whether it is actively managed or a passive index fund, and its cost structure.
Note that expense ratios can vary greatly between funds. Also, when you buy shares of an actively managed mutual fund, you are trusting that the fund managers can invest profitably on your behalf. That doesn't always work out as planned. For most investors, buying stock in a streaming and royalty company is probably the best all-around option for investing in gold. Thank you. Live Spot Prices. Get My Free Reports. Privacy Assurance Policy.
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