Gold’s meteoric rise over the past decade (up about 650 percent) might make you wish that you’d liquidated your stock portfolio and used the proceeds to fill a safe in your basement with gold coins. Whether the bull market in gold will continue as economic uncertainty drives more people towards its safe haven is unknown. But if still you’re looking to get into gold, you’ll need to decide whether to buy physical gold, mining stocks, or funds that buy and hold gold bullion for you – and avoid scams and negotiate a host of complex tax rules. Here’s four things to consider so you don’t get burned.
Which funds to pick: miners or bullion?
Buying mutual funds or exchange-traded funds (ETFs) that invest in gold miners or bullion is the simplest way to get gold exposure. The two biggest gold ETFs, SPDR Gold Trust (GLD) and iShares Gold Trust (IAU), buy gold bullion and store it in bank vaults. These ETFs trade throughout the day like stocks on an exchange and sport low annual expenses of 0.25 percent to 0.4 percent.
Mining companies are another way to play gold’s ascendancy, but have their own host of issues – worker strikes, environmental and energy issues, political instability, etc. – so it may make sense to buy a basket of miners in an ETF or fund. For cheap exposure to miners, there’s Market Vectors Gold Miners ETF (GDX), a collection of large-cap mining stocks. Fidelity and Vanguard both offer cheap mutual funds investing in miners, though their annual fees won’t be as cheap as ETFs.
One positive about owning mining stocks is that they often pay a dividend, which other types of gold investing don’t offer. However, mining stocks can get taken down with all other equities when the stock market tumbles. That’s why financial advisers often recommend buying the ETFs that own gold, to get true diversity in your portfolio.....