Gold as an investment has gained a lot of popularity in recent times. People are treating gold as a hedge against inflation. Given the financial turmoil of the last few years, investors have bought gold to shield themselves from the uncertainties associated with social, political and economic upheaval. Gold has done quite well relative to the ups and downs of various currencies during the latest financial crisis. Gold prices today are at a high, making the decision to invest in gold now a good one. There are different ways to buy gold, with gold mutual funds being one option.
Buying gold mutual funds
Gold mutual funds are a good option for investors who do not have extensive investing experience and are looking to do a bit of investing on their own. While you can certainly invest in gold directly by buying gold bullion or owning shares in a gold mining company, the main way to have gold investments is through gold mutual funds. These are managed professionally, taking the hard work out of your hands. In gold mutual funds, the work of researching gold stocks, securities and bonds to include in the fund, and to then monitor the fund performance, are all done by investment professionals.
Gold mutual funds offer you to diversify your portfolio of gold holdings. They usually include mining stocks, but some also have a bit of gold bullion mixed in. They will often also include other precious metals holdings. For instance, the Midas Fund has 605% of its assets in platinum, gold and silver bullion, and in securities of companies that deal with precious metals (i.e., companes that are involved in mining, processing, and distributing these precious metals).
Gold mutual funds often invest in foreign securities or small mining companies. This can make them somewhat riskier and given to speculation than traditional mutual funds, but on the flip side, they can also be more rewarding. One way to mitigate the risk of buying gold mutual funds is to pick a fund that specializes in large cap and well-established gold mining companies and also holds gold bullion.
Mutual funds are relatively safe, and although gold mutual funds are likely to be mixed in with other stocks, this helps to shield you from the volatility that might accompany investing in gold alone. For instance, the U.G. Global Resources Fund (PSPFX) includes a number of commodities in addition to precious metals like gold, such as oil and gas. Other good options for gold mutual funds are Vanguard Metals and Mining (VGPMX) and Prudent Global Income (PSAFX). There are many other mutual funds that give you opportunities to invest in gold. When choosing among such mutual funds, factors to keep in mind are the volatility of the fund, and costs such as transaction fees and other expenses. There may also be a fee if you cash out early, with the holding period typically being between 6 to 12 months.
Gold mutual funds eliminate the risks associated with storing and insuring actual gold. They also eliminate the need to research gold mining companies before making your gold investment.
If you are a very conservative investor, you could consider putting up to 3% of your assets in gold mutual funds. Aggressive investors could consider holding up to 10% of their assets in gold mutual funds. To sum up, buying gold mutual funds is a great way to hedge against inflation while making your portfolio less volatile.