The most direct way to own gold is to buy physical gold bars or coins, but these can be illiquid and must be stored safely. ETFs and mutual funds that track the price of gold are also popular, and if you have access to derivatives markets in your brokerage account, you can also use gold futures and options. Of all the forms of investing in gold, the riskiest is trading 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 gain exposure to gold in your portfolio. There are a multitude of ways to invest in gold. You can buy physical gold in the form of jewelry, bars, and coins; buy shares in a gold mining company or other gold-related investment; or buy something that gets its value from gold. Each method has its advantages and disadvantages.
That can make it overwhelming for novice investors to know how best to gain exposure to this precious metal. If the market collapses, the value of your investment could fall even if the price of gold doesn't change. Investors can buy gold exchange-traded funds (ETFs) to avoid the uncertainty that comes with investing in a particular company. Many online brokerage firms allow trading in these securities, but may require account holders to sign additional forms recognizing the risk of investing in these derivatives.
But while he is clear that he doesn't think investing in gold is a good idea, Smith does recognize the tie that physical metal can have. Since this means buying the shares of gold mining companies, you can invest using your brokerage account. Diversification gives investors broad exposure to the gold mining segment, helping to reduce risk. Throughout history, few investments have rivaled gold in popularity as a hedge against almost any type of problem, from inflation to economic turmoil or currency fluctuations and war.
Keep in mind that trading futures contracts involves a lot of risk and is not a suitable investment option for an inexperienced investor. Investing in gold mutual funds means that you own shares in various gold-related assets, such as many companies that mine or process gold, but you don't own the real gold or the individual shares. This makes gold ETFs and mutual funds the safest option for most investors looking to add some gold stability and shine to their portfolios. Often, the best thing you can do for your portfolio is to stick to your investment plan, not rush to buy gold bars.
These include the demand for metal in jewelry manufacturing, for some technological applications and for investment purposes. While owning gold sounds great, and can even be held accountable during a stock market crash, investing in gold comes with some unique challenges and doesn't always turn out as you might expect. Investing in shares of companies that mine, refine and trade gold is a much simpler proposition than buying physical gold. Depending on your own preferences and risk fitness, you can choose to invest in physical gold, gold stocks, gold ETFs and mutual funds or speculative futures and options contracts.