The smartest ways to invest in gold, according to experts
If you're looking to add some security to your investment portfolio, gold is worth considering. It has historically delivered steady returns and long-term stability in the face of market fluctuations, making it a great way to diversify your portfolio and protect your investments from losses from riskier assets.
But there are many ways to invest in gold, and some are better than others when it comes to cost-effectiveness, risk management and ease of investing. To help you narrow down your choices, we asked some financial experts for their opinions.
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The smartest ways to invest in gold, according to experts
While there is no one-size-fits-all recommendation that applies to all investors, a consensus did emerge among the experts we spoke with: Most investors are better off investing in gold indirectly.
Direct investment involves buying physical gold, such as coins, bars or jewelry. This is what many people think of when they think of gold investing. However, physical gold can be burdensome to hold. You must find a safe place to put it and protect it from risks like theft and damage.
As a result, "storing and insuring physical gold can come with additional costs," says Hanna Horvath, CFP. It can also be a hassle.
With indirect investment, you buy gold-backed securities or funds that track the price of gold rather than holding the precious metal yourself. This eliminates storage and security costs while still allowing you to reap the benefits of gold, such as stable value, reliable returns and protection from inflation.
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How to invest in gold indirectly
Indirect gold investment options range from individual retirement accounts (IRAs) to futures. But our experts recommended two in particular: gold ETFs and gold mutual funds.
"One of the better ways to gain exposure to gold is to invest in gold mining companies or companies that transact with gold," says Scott Sturgeon, CFP, founder of Oread Wealth Partners. "While you could buy individual company stock, it's probably best in that situation to look for exchange-traded funds (ETFs) or mutual funds that track gold mining companies, the metal itself or some combination of both."
Gold ETFs
Gold ETFs were recommended the most often by the experts we consulted. As Doug Carey, CFA, president and owner of WealthTrace, explains: "Gold ETFs are funds that hold physical gold or track the price of gold. These funds trade on stock exchanges, providing investors with a convenient way to gain exposure to gold without the need for physical storage."
ETFs typically have low investment minimums, offer tax savings and are simple to buy and sell. You can sit back and allow your ETFs to work for you or take a more hands-on approach by monitoring price changes and trading as you see fit.
"For most people, the best way to access gold is the easiest way — via an ETF that's backed by a physical depository," says Noah Damsky, CFA and principal of Marina Wealth Advisors. "It's easy, efficient and transacts at low costs."
Examples of popular gold ETFs include:
- SPDR Gold Shares (GLD)
- iShares Gold Trust (IAU)
- Sprott Physical Gold Trust (PHYS)
Gold mutual funds
Another indirect investing option to explore is gold mutual funds.
"Gold mutual funds and index funds pool investors' money to invest in a diversified portfolio of gold-related assets," Carey says. "They provide a convenient way to gain exposure to the gold market with professional management."
As with gold ETFs, gold mutual funds allow you to diversify your investments while minimizing risk. Unlike ETFs, which passively track gold prices, mutual funds are actively managed by professionals who try to beat the market. This gives them the potential for higher returns.
However, they also carry higher risks than ETFs since they invest in the stocks of companies involved in producing and distributing gold rather than simply tracking gold prices. Company stock prices are influenced by factors such as management decisions, labor disputes and changes in regulation.
You can read more about the differences between gold ETFs and mutual funds here to determine which is better for you.
Popular gold mutual funds include:
- Allspring Precious Metals Fund (EKWAX)
- Fidelity Select Gold Portfolio (FSAGX)
- Invesco Gold & Special Minerals Fund (OPGSX)
Which gold investment is best for you? Request a free investment guide here to find out!
The bottom line
If you're considering investing in gold, you have many options to choose from. Each one has its own advantages and disadvantages. It's important to carefully evaluate these options and identify your investment goals and preferences to make sure you're making the best choice for you.
"It is always important to remember that investing in anything carries a level of risk, and thorough research and analysis should be done before deciding to invest in any asset," says Horvath.
