I salute you if you've decided to invest in gold. This precious metal can do wonders for your financial stability. The potential benefits range from diversification of your portfolio to hedging your wealth against inflation and economic uncertainty.
Making the decision to invest in gold is one thing. Actually doing it is yet another. The thing is, there are multiple ways how you can invest in gold.
You need to know what those methods are before you can start contemplating this decision. I'm here to help you.
Just buying coins and bars can be immensely satisfying. You can buy through an online broker or a local pawn shop. You can get whatever pieces you want, and you can buy as much or as little as you want.
That might sound great, but there are downsides. You're going to get hit with sales tax on those transactions. Liquidating it isn't always going to be easy, either.
You'll also be responsible for the secure storage because this stuff is easy to steal. If you want gold bad enough to buy it, then you can rest assured someone else wants it bad enough to take it off your hands when you're not looking.
You can use over a dozen different gold brokers to set up a precious metal IRA. They'll buy certain pieces for you and store them in a secure vault until it's time to make retirement withdrawals. You can even fund such an account using retirement rollover funds.
The upside to this is tax benefits galore. You can skip taxes when doing a rollover and let your gold grow in value tax-free until withdrawal or distribution time. Saving for your golden years with physical gold really does work.
It's not always perfect though. There are often minimum investment levels you have to meet, you'll face restrictions on what kinds of gold you can buy, and you can't make emergency withdrawals without incurring serious penalties, taxes, and fees.
I'm hesitant to include this one. Gold futures can be a great technique if you want to speculate on gold prices rising or falling. If you get your predictions right, the leverage involved can make you a lot of money off of just a little investment.
That's tempting, but we already saw earlier this century what kind of financial havoc can be wrought by leveraging futures contracts. This is a very sophisticated money-making technique, and it's very high risk. That flies in the face of the advantages I keep touting in gold as a safe haven for wealth preservation.
This is not something I would ever recommend for retirement funds. Maybe you can do it on the side with fun money or disposable income. I only include it on the list to be thorough so you know all your gold investment options.
Most of the gold on the current market comes from two places. The first is global central banks that sold off a lot of their vault stashes from the 1990s until 2008. The other is gold mining companies that actually dig the stuff out of the earth.
If you don't want to invest in physical gold or don't have enough to invest in a gold IRA, then mining stocks can be a great way to go. When the value of gold goes up, the prices of gold mining stocks also go up. You might also see those stock prices go up when they announce boosts to production.
This isn't without risk, however. I advise you to avoid small miners or anyone that doesn't have at least one producing mine in operation. Also, these are stocks, so you're not totally diversifying into an alternative asset class.
ETFs With Gold
Exchange-traded funds can track the commodity for you so you don't have to. You can get ETFs that own the commodity itself, or you can get ETFs that focus on mining stocks. Either way, they're very simple ways to get into the gold sector, and they're very easy to liquidate.
ETFs are always subject to price fluctuations and volatility, especially if gold prices start getting choppy. You also need to make sure you pick the right fund that is properly invested and has low fees.
As you can see, there are multiple ways to invest in gold. They each have their own unique risks, but each of them allows you to benefit from the potential in this asset class. I would encourage you to consider all of them to see if they're right for you.
What I would not encourage you to do is to invest in too many of them at once. Investing in gold itself is diversification, but overdoing it isn't.