If you have been thinking of investing in gold, congratulations. Why? It shows you think long-term. The truth is that gold has always been a ‘safe refuge’ for investors during times of economic uncertainty. As awesome as global stock markets have been performing lately, the old saying of ‘what comes up must come down’ definitely applies not just to the physical and natural worlds but also to the finance world. Stocks often go through boom and bust cycles. Inflation is always lurking in the background threatening to reduce the value of your hard-earned cash. Governments are not immune from devaluation. These are the key risks investing in gold protects against. You would do well to diversify your investment portfolio by investing in gold. With that said, there are so many ways to invest in gold and precious metals, for that matter, out there. How do you pick the ‘best’ way to invest in gold.
The problem with defining ‘the best’
Let’s face it, ‘the best’ is a very subjective and slippery term. Maybe this is why salesmen love using the phrase ‘the best.’ Hearing ‘the best’ makes you feel good but chances are you’re just letting your impressions and assumptions regarding the meaning of this overused and abused phrase get the best of you. The sad reality is that what is ‘best’ for your might turn out to be a disaster for someone else. And vice-versa. Moreover, you can’t base your investment decision on what is ‘best’ for a salesperson trying to get you to invest in a particular gold investment option. The good news is that there is a powerful way to define what is ‘the best’ when it comes to your gold investment options: focus on your needs. That’s right-by focusing on what your particular investment needs are, your risk profile, the amount of time and management you’re willing to put into your gold investments, and other factors, you can come up with the best range of options when it comes to owning gold. Keep your needs in mind when examining the different gold investment options listed below.
Direct ownership: Physical gold
There is a certain psychological benefit to being able to physically handle the gold you are investing in. Unlike stocks which give you a legal share in a corporation, when you buy direct physical gold, you get to handle the gold. You get to touch it. You get to see it. There is a psychological benefit to this. You simply and directly feel you own something valuable. So far so good, right? Well, the downside with owning gold directly is that you have to worry about robbers. If you think your gold bullion is valuable to you, it is doubly more valuable to people who want to rip it away from you. You have to invest in a home safe or pay to have your gold stored somewhere. Also, you have to get the proper insurance for your gold bullion investment. When it comes time to sell, you would need to pay assay fees so the company (most people usually sell to a company that buys and sells gold when they liquidate) can be sure that you’re selling real pure gold bullion. Keep these details in mind. They definitely add to your cost. Also, there is a psychological price to having physical gold in your home-you can lose sleep due to the risk of crime.
Direct ownership: Gold coins
The great thing about owning gold coins is that you get to play two investments in one. First, you’re obviously investing in the gold market. At the very least, your gold coins will be worth the price of the gold they contain. Gold prices can change dramatically and you can definitely play the gold market by buying gold coins. The second market you’re investing in when you buy gold coins is the collectible coin market. Gold coins get their value from two sources: the amount of gold they contain and the premium collectors pay for the coins. This is a serious consideration. Why? When you buy your gold coins, you actually pay the base gold value and a premium for the coin. This can be a serious headache when you try to unload your gold coin collection. You might end up losing money if the price of gold remains stable or the same and the collector premium of your coins don’t go up.
Investing in gold exchange traded funds is the safest way to invest in gold bullion. Imagine getting into physical gold without having to worry about burglars or paying all sorts of fees for the storage and insurance of your gold holdings. Exchange traded funds work like mutual funds. They are traded based on net asset value (NAV). Gold ETFs only have one asset and one asset alone: a fixed amount of gold bullion. You basically buy the Gold ETF and play it like a stock investment: buy low and sell high. The advantage to this way of owning gold is that it is very liquid. You can easily buy to get in and sell to get out. The biggest advantage to ETFs is that they make investing in gold very easy. The downside is that you don’t get to physically handle your gold investments. Another downside is that the price of the ETF is tied to the price of gold solely.
Gold mining stocks
One of the most interesting ways to play the gold market is to invest in gold mining stocks. You get rid of the headaches of physical and ETF gold investments by investing in gold mining stocks. Your stock might go up higher than the appreciation of gold prices. Why? Your stock might enjoy a ‘market premium.’ This is the extra value placed by the market for hot stocks. With gold mining stocks you essentially get the benefits of playing in the gold and stock markets. The downside, just like with playing the stock market in general, is picking the right company to invest in.