One of the best ways to diversify your portfolio is with gold. It is often considered a safety trade. This yellow, precious metal has had appeal for thousands of years and has been a popular investment as a hedge against inflation.
Gold is a hard asset while currencies like the U.S. dollar are known as “fiat” currencies. Fiat currencies are not backed by anything except the promise of the government. Gold for this reason can provide insurance for a trader’s portfolio. The shiny metal is definitely appealing and many wonder how to start investing in it. There are different ways to go about it.
One way to start is by investing in physical gold itself or Gold bullion. What is gold bullion? It is a form of pure, or nearly pure, gold that has been certified for its weight and purity. Think of coins and bars. This is a universal currency held by most central banks. It is not something to trade but to hold on to. It can be costly to buy and sell. Imagine having a gold bar that is worth $100,000. How do you sell 10% of it? Are you going to saw off a piece? Its wiser to hold onto smaller-sized bars and coins that would provide you with more liquidity.
Once you have put some gold bullion into your portfolio, you can start to look at other investment vehicles such as mining shares or investment funds. Many people who cannot afford gold bullion will skip it and go directly to gold mining stocks or investment funds. A popular choice are ETFS and mutual funds that track the price of the metal. The annual expense ratios of ETF funds are often less than 0.5%. This is cheaper than the fees and expenses on many other investments like mutual funds. You will have to do some exploring on which ETF works for you as some funds invest in the indexes of mining companies while others are tied to gold prices.
Gold mining companies and their stocks are another way to expose yourself to gold and get started. Even when gold prices may be flat or dropping, mining companies can still show a profit as business factors such as earnings and production weigh on their share price.
A trading account that has access to the derivatives market can be used for gold futures and options. Options investments are derivatives of gold’s price and can see very dramatic moves up and down, especially if done on margin. Futures are a more efficient way to invest in gold, but contracts must be rolled over periodically as they expire.
There are many ways to get in on the gold boom, but they can be overwhelming which is why many people will hire a financial pro or advisor to guide them. These professionals are able to point out how to get the most gold for your money. Whichever way you do it, gold can be a great addition to your portfolio. Gold is six times more rare than platinum, and 18 times rarer than silver. There are unprecedented worries about a recession coming and smart money is moving towards gold investments.