Gold has long been considered a valuable part of any investment portfolio. It is a reliable safe asset that hedges inflation and protects your money from recessions and other economic shocks.
However, investing in physical gold can be complicated and expensive. Fortunately, there are many ways to invest in gold, including gold exchange-traded funds (ETFs). In this article, we’ll explore what a gold ETF is, how it works, and why you should consider it as part of your investment portfolio.
Learn more about investing in gold by requesting a free information kit here.
What is a Gold ETF?
Exchange-traded funds (ETFs) are pooled investment funds that hold a collection of assets, such as stocks, bonds and commodities. They are essentially a “basket” of investments that give you exposure to a particular index, industry, sector or commodity. Having a collection of assets like this helps diversify your portfoliominimizing the risk of putting all your money into any particular asset.
A gold ETF holds gold as its primary asset. Gold ETFs track price of goldso as gold prices rise, the value of the ETF increases.
You buy and sell gold ETFs on a stock exchange just like you would stocks. Prices fluctuate throughout the day as the ETF trades, and you can trade during the day to take advantage of these fluctuations. Gold ETFs can be passively or actively managed, but most are passively managed.
Benefits of investing in a gold ETF
Gold ETFs offer the following benefits:
- Diversification: Because you’re investing in multiple underlying assets, gold ETFs can minimize risk better than investing in a single asset. And since gold often performs well when other assets such as stocks and bonds perform poorly, this can help offset losses.
- Lower costs: Owning a gold ETF is cheaper than owning, insuring and storing physical gold. It also costs less than buying stocks individually, which involves multiple transactions and therefore more brokerage commissions. Finally, passively managed ETFs are cheaper because they track an index rather than requiring regular analysis and information from the broker.
- Low investment minimums: You can buy an ETF through a unit, which means you don’t need a lot of money to invest in one. In contrast, gold mutual funds (a similar pooled investment) typically require a minimum investment of $1,000 to $3,000.
- Liquidity: Unlike gold mutual funds, which you can only trade at the end of the day, you can trade gold ETFs throughout the day in real time to take advantage of price changes.
- Tax efficiency: Because of the way they are designed, ETFs tend to generate less capital gains than mutual funds, especially if they are passively managed. Because capital gains are taxable, this can allow you to keep more of your money.
The bottom row
Gold ETFs can be a valuable investment vehicle for investors looking to diversify their portfolios and benefit from the advantages of gold. They provide a cheap way to invest in gold, are highly liquid and are more tax efficient than mutual funds.
However, like any investment, you should do your research when investing in gold ETFs. If you’re looking for a long-term and stable investment to diversify your portfolio, a gold ETF is worth looking into.
Are you ready to invest in gold? Request a free Investor Kit today to start exploring your options!
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