Gold is one of the oldest investment strategies there is and continues to be relevant even today. Gold tends to move in the opposite direction as the stock market, so it can be a worthwhile asset in the event of a market downturn.
When you imagine investing in gold, you may picture people hiding gold bars underneath their bed. This is an option, but it’s probably not the smartest investment strategy. And there are actually many ways you can invest in gold, even as a beginner.
Why invest in gold?
Before we get into how to invest in gold, it can be helpful to understand why gold is still a sound investment in 2020. The biggest reason is that gold is considered to be an inflation hedge.
An inflation hedge is an investment that protects the purchasing power of currency from rising costs due to inflation. An inflation hedge either maintains or increases its value over a long period of time.
For instance, the dollar bill is not an inflation hedge because its value decreases over time. In comparison, an ounce of gold can still purchase roughly the same amount of goods as it could 200 years ago.
You don’t want to have all of your assets tied up in gold. But for investors that are looking for ways to protect themselves from inflation, buying gold isn’t a bad choice. And gold can help you diversify your portfolio outside of the stock market.
Pros and Cons of Investing in Gold
There are many advantages to investing in gold, but there are downsides to consider as well. If you’re on the fence about whether or not buying gold is the right strategy for you, here are a few pros and cons to think about first.
- Gold has intrinsic value
- It can serve as a hedge against inflation
- A good way to diversify your portfolio
- Buying gold can provide a feeling of security
- It’s fairly easy to buy and sell gold coins
- There are multiple ways to get started investing in gold
- It can be hard to know if you’re getting a good deal
- Storing gold can be expensive
- Dealers can charge a number of hidden fees
- Gold doesn’t pay interest or dividends
5 Ways to Invest in Gold
Now that you understand why gold is a good investment, you may be wondering how to get started. Well, it’s actually easier than ever to invest in gold because there are so many options available.
However, this can cause many new investors to feel overwhelmed and unsure of how best to start. If you’re new to investing in gold, here are five solid options you can consider.
1. Physical gold
The most straightforward way to invest in gold is by purchasing physical gold, either online or in-person. You can buy gold bars, coins, or bullions from gold dealers.
There are advantages to going this route, and the biggest is that it’s a tangible asset that you own. Having a tangible asset can provide many people with a sense of security, and more control over their investment.
However, if you purchase gold coins or bars, you’re going to have to choose carefully when it comes to the company you work with. Some dealers will mark up the price of gold heavily, so it can be hard to know if you’re getting the best deal.
And if you purchase physical gold, you’ll need to have a way to store it, so you’ll likely end up paying storage costs. Plus, gold is not a liquid asset, so you may have a hard time selling it down the road.
2. Gold mining stocks
One of the biggest issues many people have with investing in gold is that there’s no growth potential. Sure, gold retains its value, but it’s not going to earn you any money, which is the entire point of investing.
If this issue has been holding you back from buying gold, then you might consider gold mining stocks. Instead of purchasing physical gold, you’ll purchase stocks of companies engaged in mining precious metals.
There are many gold mining stocks that consistently outperformed the market during the fallout of COVID-19. For instance, Goldcorp, Franco Nevada Corp., and Kirkland Lake Gold Ltd. are all good options you can consider.
However, you aren’t really investing in gold; you’re investing in that business. And that always comes with inherent risks. If you choose to go this route, you’ll need to pay close attention to what’s going on with that company.
3. Gold exchange-traded funds (ETFs)
Gold ETFs are a great option for anyone that wants to invest in gold without having to pay for storage costs. An ETF holds gold bullions at a storage facility and allows investors to buy shares of the fund.
Gold ETFs are a great option for beginners because you can invest in the asset without having to physically manage it yourself. You can purchase gold ETFs through a regular brokerage firm.
4. Gold certificates
Gold certificates are another way to invest in the asset without having to physically purchase it and store it yourself. Essentially, you buy a note issued by a company that owns and sells gold. The note isn’t issued for any specific type of gold, but the company verifies that it has the assets to back the note.
Gold certificates are not a bad option for beginners, but you’ll need to choose the company wisely. Otherwise, it could be easy to fall prey to scam artists. If you’re not sure about going this route, then gold ETFs may be a better option for you.
5. Gold mutual funds
And finally, if you’re interested in the idea of owning stock in companies that deal with gold, you might consider investing in a gold mutual fund. A mutual fund allows you to own a portfolio of gold mining companies, as opposed to just investing in one company.
A gold mutual fund is a great way to diversify your portfolio, though the fees may be higher. If you’re considering this option, you’ll want to find a broker that you trust who can advise you.
What’s the Best Gold Investment Strategy for Beginners?
If you’re new to investing in gold, then you may be wondering what the best option is. The truth is, there are no perfect investment strategies, so you’re going to have to evaluate the risks and rewards of each one.
Consider what your goals are and why you want to invest in gold. If your only strategy is to protect yourself against inflation, then buying physical gold may be the right choice for you. Whereas, if you want an income-producing asset, then gold stocks or mutual funds may be a better choice.
Just keep in mind that gold should only be one part of your total investment strategy. Ideally, it will be less than 10% of your total portfolio. That way, you’ll diversify your assets without putting too much at risk.
By now, you understand what the benefits and downsides are to investing in gold, as well as your options for getting started. If you want to move forward and begin investing in gold, it’s best to start small and slowly increase your assets over time.
Make sure you do your homework when it comes to the company you choose to work with. When you talk to potential companies, try to get a sense of how transparent they are and forthcoming about the fees they charge. It’s also a good idea to check their ratings and reviews so you can see what kind of experience other customers have had.
But if you take your time and invest wisely, you could protect yourself from future market downturns.