…What does money expert Clark Howard think of gold as an investment and, if you do invest in gold, what method does Clark recommend? Below are Clark’s 4 rules for buying gold.
This article is a severely edited ([ ]) and abridged (…) version of the original article by Christopher Smith for the sake of clarity and brevity to provide a faster and easier read.
1. Limit Your Investment to a Small Percentage of Your Portfolio
…Limit alternative class investments to a small percentage of net worth, typically about 5%…[and put it] into a target date fund…. Putting money into this type of asset class, especially beyond 5%, is speculating rather than investing.
2. Don’t Physically Hold the Gold You Buy
…Many people who buy gold want the actual mineral…[but that] presents multiple issues.
- It costs money to store gold.
- the gold could also get stolen or lost and, finally,
- there’s typically a large spread between the bid and ask prices for gold bars…
3. Buy Gold Through an ETF or ETN
…My preference is that you buy a gold ETF…paying a small fee for a group to manage the physical gold on your behalf. Each share represents a fraction of an ounce of gold…Some of the gold ETFs with the cheapest fees include:
- iShares Gold Trust (IAU): 0.25% expense ratio
- GraniteShares Gold Trust (BAR): 0.175%
- Aberdeen Standard Physical Gold Shares ETF (SGOL): 0.17%
- SPDR Gold MiniShares Trust (GLDM): 0.10%
An ETN (exchange-traded note) is more like a bond, but similar principles apply.
4. Check Your Motivation Before You Buy
For decades, a small but loud group of gold evangelists has clung to the idea that governments and financial systems in first-world countries (including the United States) could collapse. Should that occur, they theorize, people holding large amounts of physical gold will be in a much better position to survive.
Another common motivation behind buying gold is to hedge against inflation…however, most of the time, above-average inflation is short-lived. Even with inflation lasting for years, Clark says the best way to maintain your purchasing power is to keep a well-diversified portfolio with an age-appropriate exposure to stocks… Historical data around inflation…[suggests here] that there’s no such thing as an asset that’s a perfect inflation hedge.
It’s usually a bad idea to allow fear or financial dogma to dictate your investments so make sure you understand why you’re buying gold even if you intend to invest only a small amount of your portfolio into the precious metal.