How to Invest in Gold as a Beginner

Gold is one of the oldest investment strategies, and it continues to be relevant even today. In addition, 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.

gold on table

When you imagine investing in gold, you may picture people hiding gold bars underneath their bed. Of course, this is an option, but it’s probably not the wisest investment strategy. 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 help to understand why gold is still a sound investment in 2022. The biggest reason is that gold is considered to be an inflation hedge, according to the World Gold Council.

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 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 also some downsides. If you’re on the fence about whether buying gold is the right strategy for you, here are a few pros and cons to think about first.

Pros

  • Gold has intrinsic value.
  • It can serve as a hedge against inflation.
  • It’s a good way to diversify your portfolio.
  • 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.

Cons

  • It can be hard to know if you’re getting a good deal.
  • Storing gold can be expensive.
  • Dealers can charge several 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 gold 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. While gold jewelry is probably the most frequently bought type of physical gold, it’s generally not sold by gold dealers. The products you can buy from dealers typically include gold bars, gold coins, or gold bullion.

There are advantages to owning physical gold, and the biggest is that it’s a tangible asset. Having a tangible asset can provide many people with a sense of security and more control over their investment.

However, if you purchase pure 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 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 be investing in a gold mining company that engages in mining precious metals.

Many gold stocks 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’re not technically investing in gold; you’re investing in that business. And that always comes with inherent risks. So 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 an excellent option for anyone that wants to invest in gold without having to pay for storage costs. An ETF holds gold bullion 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 Mutual Funds

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 gold funds, you’ll want to find a broker that you trust who can advise you.

5. Gold Futures

Gold futures contracts are agreements to buy and sell gold at a later time; in the future. They are probably the riskiest way to invest in gold. The contracts represent a certain amount of gold, and they can pay out in either a dollar amount or the physical gold, depending on the specifications.

With gold futures options contracts, investors have the option to purchase a futures contract for a preset price at a certain point in time. This investment strategy is probably not best for beginners, but we wanted to include it just in case you have experience with futures and options.

What’s the best gold investment strategy for beginners?

If you’re new to gold investments, 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.

Bottom Line

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 to buy 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.

Jamie Johnson
Meet the author

Jamie Johnson is a freelance writer who has been featured in publications like InvestorPlace and GOBankingRates. She writes about various personal finance topics including student loans, credit cards, investing, building credit, and more.