Investing in gold can provide protection against inflation.
Inflation can erode the purchasing power of a dollar, but gold can help you hedge against that loss of value.
There is no doubt that gold can be a worthwhile addition to a diversified portfolio, but it might not be suitable for all investors.
One rule of thumb is to limit your use of gold to no more than 10% of your overall investment portfolio.
Here are four ways to invest in gold.
Gold in its physical form
There are numerous ways to invest in gold. They include gold bars, gold coins, and hunks of pure gold and jewelry.
As soon as someone thinks about investing in gold, they usually refer to it as “bullion.”
Although it may be the most exciting method of investing in gold, it is often the most difficult method of purchasing, storing, and selling gold.
Stocks in gold-mining companies carry some risk, just like individual stock purchases, but investing in them gives you complete control over which companies you invest in.
The investment decisions of some investors might be more likely to be influenced by the environmental performance of a gold mining company than by one that does not.
You can invest in gold mutual funds by buying shares in a number of companies that mine or process gold, but you do not own the actual gold or individual stocks.
Compared to owning physical gold, gold exchange-traded funds or mutual funds offer a greater level of liquidity and diversification than individual stocks.
Gold futures contracts are agreements to buy or sell gold at a later date. The contract itself is what is traded on an exchange.
Futures contracts in gold are more liquid than physical gold, and there are no management fees, although brokerage firms may charge a trade fee (also known as a commission) per contract.
The amount of money you can lose with these investments can exceed your original investment, which is why inexperienced investors should be aware that trading futures contracts involves substantial risk, and it is not an ideal investment option.