Mutual funds and ETFs are generally the easiest and safest ways to invest in gold. Each share of these securities represents a fixed amount of gold, and you can easily buy or sell these funds in your brokerage or retirement account. Of all the ways to invest in gold, the riskiest is to trade futures or options contracts, a form of speculative investment. Futures and options are derivatives, meaning that their value is based entirely on the price of an underlying asset.
Investing in gold stocks, ETFs or mutual funds is often the best way to expose yourself to gold in your portfolio. Like buying any individual stock, buying shares in a gold mining company involves some risk, but it means that you have full control over the specific companies you invest in. That's one of the reasons why legendary investors, such as Warren Buffett, warn against investing in gold and instead advocate buying companies with cash flow. Investing in physical gold can be a challenge for investors who are more used to trading stocks and bonds online.
Investing in the shares of companies that extract, refine and trade gold is a much simpler proposition than buying physical gold. This means that investing in individual gold companies entails risks similar to those of investing in any other stock. Often, the best thing you can do for your portfolio is to follow your investment plan, not rush to buy gold bars. When economic times get tough or international conflicts, such as the war between Russia and Ukraine, destabilize markets, investors often turn to gold as a safe haven.
Alternatives to investing in gold include buying shares in gold mining companies or gold exchange-traded funds (ETFs). This contrasts with the owners of a business (such as a gold mining company), in which the company can produce more gold and therefore make more profits, increasing investment in that business. While owning gold sounds great and can even be considered responsible during a stock market crash, investing in gold comes with some unique challenges and doesn't always turn out the way you might expect. And, according to Gold Bars Worldwide, gold bars have to be 99.5% pure to be considered a true investment, meaning that anything below that figure can be difficult to sell back to the market, so be careful not to buy any “foolish gold”.
But while he is clear that he doesn't think investing in gold is a good idea, Smith does recognize the attractiveness of physical metal. At the end of the day, gold is just one of the possible pillars of a diverse and healthy investment portfolio. But in general, buying gold stocks offers a familiar, practical and indirect method of investing in brilliant products. Diversification refers to investing in a variety of assets in a variety of industries, company sizes, and geographical areas.
Investors like gold for many reasons, and it has attributes that make this commodity a good counterpoint to traditional securities, such as stocks and bonds.