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Gold bars and coins vs. gold stocks: Which is better for beginners?

Gold Price, Commodities Investment
Weigh the pros and cons for gold bullion and gold stocks before deciding which works best for you. Olivier Le Moal/Getty Images

Adding gold to your investment portfolio can be a smart move, no matter what the economy looks like or what your investment experience is. Whether you're a seasoned investor or are just starting out, gold can add many unique benefits to your portfolio. 

But there are a number of different gold assets to choose from, like gold IRAs, gold ETFs and gold bullion, which can make it a bit complicated for beginner investors. When first starting out, many investors will narrow down the choices to gold bars and coins or gold stocks

Both options have their own set of advantages and risks for beginner investors, and it's important to understand the differences before making a decision. 

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Gold bars and coins vs. gold stocks: Which is better for beginners?

If you're a beginner investor who's trying to decide between gold bullion and gold stocks, here are some pros and cons to consider for each option:

Pros of gold bars and coins for beginners

  • Tangible asset: Holding physical gold in the form of bars or coins provides a sense of security as it's a tangible asset you can physically possess.
  • Liquidity: Gold bars and coins are relatively easy to sell, especially during times of economic uncertainty when the demand for safe-haven assets like gold tends to increase.
  • Inflation hedge: Gold has historically been considered a hedge against inflation, which can help protect your purchasing power over time. That can be useful in nearly any economy, but it's an especially helpful benefit right now, as persistent inflation is still an ongoing issue.
  • No counterparty risk: Investing in physical gold eliminates the need to rely on a third party or financial institution. You have direct ownership and control over your investment.

Cons of gold bars and coins for beginners

  • Storage and security: Storing physical gold safely can be a challenge. You might need to invest in a secure storage facility or take precautions to prevent theft, which can make the entry barrier much higher than it is with other types of gold investments.
  • Steeper learning curve: Understanding the intricacies of buying, storing and selling physical gold can involve a steeper learning curve compared to trading financial instruments. Disreputable sellers can be an issue when buying gold bars and coins, so new investors will need to do their homework beforehand and truly understand what they're getting into — and how to navigate the market — to avoid costly scams or missteps.
  • High initial costs: Acquiring gold bars or coins requires significant upfront costs in most cases due to the spot price of gold, which might be a barrier for beginners who have limited capital to invest.

Find out more about gold investing here, right now.

Pros of gold stocks for beginners

  • Potential gains: Investing in gold stocks provides exposure to the potential gains from gold's price movements while diversifying risk across multiple companies. This can result in quicker profits in some cases, which can be a benefit for beginner investors who want to see faster returns than you'd get with gold coins and bars.
  • Liquidity: Buying and selling gold stocks can be done quickly and easily through brokerage accounts, providing high liquidity — much like gold bars and coins.
  • Easy management: When you invest in gold stocks, you're often relying on the expertise of company management to navigate the challenges of the industry. And, if you're taking your own route, it's easy to find an investing platform online that offers this type of investment — so you have plenty of options.
  • Lower entry barrier: Gold stocks often require a lower initial investment compared to purchasing physical gold. The price point of the individual stocks is typically less than the spot price of gold, making gold stocks a more accessible route for beginners with limited capital.

Cons of gold stocks for beginners

  • Market volatility: Gold stocks can be subject to significant price volatility due to factors beyond gold's price, such as company performance and market sentiment. Just as this can lead to big profits, it can also lead to swift losses if you aren't careful.
  • Counterparty risk: Investing in gold stocks exposes you to the risks associated with the company's management and financial health. For example, if the gold mining company faces challenges, your stock prices may reflect that.
  • Market dependency: The performance of gold stocks can be influenced by broader market trends, which might not always align with gold's price movements.

Which is better for beginners?

The choice between physical gold and gold stocks ultimately depends on your investment goals, risk tolerance and preferences. If you value owning a tangible asset and are comfortable with the responsibilities of secure storage, physical gold might be appealing. On the other hand, if you're looking for easier liquidity, diversification and professional management, gold stocks could be a better fit.

For beginners, taking a balanced approach could be the smartest move. Allocating a portion of your investment portfolio to both physical gold and gold stocks can provide a mix of security and potential growth. 

The bottom line

Whether gold coins or bars or gold stocks are the best choice for you as a beginner investor is dependent on numerous factors. You'll need to weigh your risk tolerance, your investing goals and your other preferences to decide what approach to take. But just remember that all investments carry risks, and thorough research is crucial before making any investment decisions. As your experience and knowledge grow, you can adjust your investment strategy accordingly.

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