Sunday , 3 December 2023

4 Rules for Buying Gold

…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.

  1. It costs money to store gold.
  2. the gold could also get stolen or lost and, finally,
  3. 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.



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