Although purchasing gold may make you feel regal, doing so may be challenging and not necessarily profitable.
Is gold a good investment?
When the stock market experiences a significant decline, gold’s price often increases, earning it a reputation as a recession-friendly investment. Deaton Smith, a licensed financial advisor and the founder of Thayer Financial in Hickory, North Carolina, argues that this is not the whole picture. The concept is that it’s a safer investment than stocks, but the long-term price valuations just haven’t materialized.
In reality, over longer time periods, such as the last 30 years, the Dow Jones Industrial Average, a reliable indicator of the performance of the whole stock market, has beaten gold. In addition, although the stock market has ups and downs, investing in real gold may come with a number of unforeseen expenses and factors, such as insurance and safe storage.
Gold does not provide cash flow as other assets do, so it should only be added to your investment mix in small amounts and with prudence. However, adding gold to your portfolio may help you diversify your holdings, which can help you better weather a recession.
Four methods for buying gold
This is what most people see when they consider investing in gold, sometimes known as “bullion.” Treasure chests and bank robberies are filled with gold bars, gold coins, chunks of pure gold, and gold jewelry. It may be the most thrilling method to invest in gold, but it’s also the trickiest to purchase, store, and sell.
A word regarding gold jewelry: Although it may sometimes increase in value over time, it can be difficult to appraise, and there are no promises you’ll be able to sell a piece for more than you paid for it. According to Smith, many customers who buy jewelry afterwards wish to sell it to the store. “Jewelry has a really significant markup, and the resale value is well below what you’re paying for.”
Stocks of gold
While purchasing shares in a gold mining firm carries some risk, it also gives you ultimate discretion over the exact companies you decide to invest in. Investors could, for instance, choose a gold mining business that upholds strict environmental responsibility over one that does not. While holding stock won’t allow you to have gold in your hands, it does provide you the advantage of having a liquid asset. Study up on stocks.
When you invest in gold mutual funds, you don’t really own the gold or individual equities; instead, you hold shares in several gold-related assets, such as numerous firms that mine or process gold. Gold exchange-traded funds or mutual funds provide a degree of diversity that a single stock does not, as well as having more liquidity than holding real gold. Mutual funds and ETFs have similar legal safeguards. You should be aware that certain funds charge administration fees. Learn more about mutual funds and ETFs.
Futures on gold
An agreement to acquire or sell a certain quantity of gold at a later time is known as a gold futures contract. What is exchanged on an exchange is the contract itself. Although there are no administration costs and better liquidity for gold futures than for real gold, brokerages may levy a transaction fee (also known as a commission) each contract. Remember that trading futures contracts has a high level of risk and is not a good choice for a novice investor. With these investments, you run the risk of losing more money than you put in.