When the market tumbles or investors are afraid of what’s going on in the world or people are afraid of inflation, interest in gold investing goes up. You’ll hear folks lament over-priced stocks or express distrust in the Fed to unwind from their ‘quantitative easing’ without printing money and causing hyper-inflation. But whatever the reasons, investors will often ask ‘How can I invest in gold?’
Whether or not you think that you saw Chicken Little yelling about the sky falling or just believe, as I do, that you need to be diversified and have many different eggs in many different baskets, gold should be a part of almost everyone’s portfolio.
In many ways, gold can add some diversity to a portfolio. Generally, when inflation fears spark or there is some sort of crisis reported on the news or there is volatility in stocks (which may be caused by both), investors will tend to flock toward gold as a ‘safe haven’. Besides the ability to dazzle, there is nothing magical about gold. Unless used in a manufacturing process like to make electronics, gold has no special powers beyond its mythical allure. (Think leprechauns and rainbows here).
Other times folks feel better about actually having some tangible form of wealth instead of relying on bank statements or screen shots showing that you ‘own’ a piece of a company’s stock. Other times people use gold as a way to hide away assets. In the divorce planning side of my practice, I’ve come across situations where a spouse converted most of the family’s liquid assets into gold bars that were stored in a bank safety deposit box without the other spouse knowing it.
Gold is heavy, hard to move, and its price is based as much on fear and sentiment (about the economy or your own personal situation) as supply and demand.
How can I invest in gold?
But regardless of the reason or motivation, it can serve a purpose in a well-diversified investment program. (For that matter, the same may be said for almost any rare metal which may also serve an important role in economically critical electronics and computers.)
Gold, in particular, and precious or rare metals used in specialty electronics, in general, are an alternate asset class to use to further diversify your investments.
Investors typically buy gold as a hedge against inflation or macro-events that may lead to market volatility or stock market corrections.
Different Ways to Hold Gold
You can buy gold in the form of bars through a dealer. You can buy gold coins through numismatic brokers. You can also buy gold in the form of jewelry. Each of these options has its own costs for acquisition, holding, and storage. Each may also have liquidity risk. You may not be able to convert or sell the gold coins, bars, or jewelry easily or have to sell them at a discount. Imagine walking into a pawn broker for example. And if you physically own gold, you’ll have to arrange for a way to secure it and insure it whether in the form of jewelry, coins or bars.
An easier option that provides readily available access and liquidity is to buy physical gold Exchange Traded Funds (ETFs). These types of ETFs actually represent your ownership in a physical piece of the shiny metal. You can access ETFs through any custodial trading platform. These securities may be held in a taxable or tax-deferred (i.e. IRA) account. To own precious metals like gold in an IRA, you’ll need to follow some special rules. You’ll need to have your physical gold held by a special authorized custodian.
You can find a list of the largest physical gold ETFs here on ETFdb.com.
Everything noted here can also apply to other metals.
Holding gold coins or jewelry may be an emotional thing. Whether or not you should also invest in gold depends on the rest of your financial picture and your fears.
To determine how best to include gold in your total investment program, reach out to a qualified financial planner and investment adviser.