There are a lot of options here, with most major mutual fund houses offering open-end funds that invest in gold miners, such as the Fidelity Select Gold Portfolio and Vanguard Precious Metals Fund.
However, as the Vanguard fund's name implies, you are likely to find a fund's portfolio contains exposure to miners that deal with precious, semiprecious, and base metals other than gold. That's not materially different from owning mining stocks directly, but you should keep this factor in mind, because not all fund names make this clear. For example, the Fidelity Select Gold Portfolio also invests in companies that mine silver and other precious metals.
Fees for actively managed funds, meanwhile, can be materially higher than those of index-based products. You'll want to read a fund's prospectus to get a better handle on its investing approach, whether it is actively managed or a passive index fund, and its cost structure. Note that expense ratios can vary greatly between funds. Also, when you buy shares of an actively managed mutual fund, you are trusting that the fund managers can invest profitably on your behalf.
That doesn't always work out as planned. For most investors, buying stock in a streaming and royalty company is probably the best all-around option for investing in gold. These companies provide miners with cash up front for the right to buy gold and other metals from specific mines at reduced rates in the future.
They are like specialty finance companies that get paid in gold, allowing them to avoid many of the headaches and risks associated with running a mine.
Benefits of such companies includes widely diversified portfolios, contractually built-in low prices that lead to wide margins in good years and bad, and exposure to gold price changes since streaming companies make money by selling the gold they buy from the miners.
That said, none of the major streaming companies has a pure gold portfolio, with silver the most common added exposure. Franco-Nevada, the largest streaming and royalty company, also has exposure to oil and gas drilling.
So you'll need to do a little homework to fully understand what commodity exposures you'll get from your investment. And while streaming companies avoid many of the risks of running a mine, they don't completely sidestep them: If a mine isn't producing any gold, there's nothing for a streaming company to buy.
The built-in wide margins that result from the streaming approach provide an important buffer for these businesses. That has allowed the profitability of streamers to hold up better than miners' when gold prices are falling. This is the key factor that gives streaming companies an edge as an investment. They provide exposure to gold, they offer growth potential via the investment in new mines, and their wide margins through the cycle provide some downside protection when gold prices fall.
That combination is hard to beat. There's no perfect way to own gold: Each option comes with trade-offs. That said, probably the best strategy for most people is to buy stock in streaming and royalty companies. However, what to invest in is just one piece of the puzzle: There are other factors that you need to consider.
The real benefit, for new and experienced investors alike, comes from the diversification that gold can offer. Once you've built your gold position, make sure to periodically balance your portfolio so that your relative exposure to it remains the same. It's best to buy small amounts over time. When gold prices are high, the price of gold-related stocks rises as well. That can mean lackluster returns in the near term, but it doesn't diminish the benefit over the long term of holding gold to diversify your portfolio.
By buying a little at a time, you can dollar-cost average into the position. As with any investment, there's no one-size-fits-all answer for how you should invest in gold. But armed with the knowledge of how the gold industry works, what each type of investment entails, and what to consider when weighing your options, you can make the decision that's right for you.
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The information on this site does not modify any insurance policy terms in any way. When economic times get tough or the stock market looks jittery , investors often turn to gold as a safe haven. Savers and investors like gold for many reasons, and it has attributes that make the commodity a good counterpoint to traditional securities such as stocks and bonds.
One of the more emotionally satisfying ways to own gold is to purchase it in bars or in coins. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. His focus is on breaking down complex financial topics so readers can make informed decisions.
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How to Invest in Physical Gold Investing in physical gold can be challenging for investors more accustomed to trading stocks and bonds online. Gold Bullion When most people think about investing in gold, bullion is what they think of—big, shiny gold bars locked away in a vault.
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