When you want to invest in gold, the first rule of thumb that you need to know about is the dollar cost averaging. This just means that you should invest a fixed amount of money in gold, every single month, no matter the price. When you’re an average investor, this strategy will primarily decrease your risks.
Money managers always advise their clients to allocate a percentage of your money in gold. While some say that it should be between 3 and 10%, others advocate that the allocation can be as high as 20%. And this happens for a reason. Gold can be an insurance against inflation, global uncertainty, and currency debasement.
But how can you invest in gold? Here are four different ways:
#1: Gold Bullion
Buying physical gold is one of the options that you have, and it’s the favorite for many people. You can buy physical gold at different prices, and it can include jewelry, bars, or coins. To store the gold, you can have a safe at home or store it in a bank safety deposit box. You can also try to buy and sell gold across the different local jewelers.
#2: Gold ETFs
Gold ETFs (Exchange-Traded Funds) are another popular way to invest in gold, and by using this option, you don’t need to store it.
While the GLD (SPDR Gold Shares) is the most heavily traded ETF, the iShares Comex Gold Trust (IAU) is one of the cheapest, and it has a 0.25% fee.
A different kind of ETF – the ETFS Gold Trust (SGOL) that launched in 2009, actually stores the gold bullion in Switzerland. It also gives investors access to different gold types.
Gold is a precious tool both for traders as well as for investors. It allows them to protect their portfolio as well as to hedge other gold positions they might have.
#3: Gold ETNs
If you are a more aggressive trader or investor, you might consider the gold ETNs (Exchange-Traded Notes). Simply put, these are debt instruments that track a particular index. For example, you give your bank the money for an allotted amount of time. Upon maturity, the bank will pay you a return based on the ETN performance. In this case, it should be according to the performance of the gold futures market.
#4: Gold Miner Penny Stocks
The last option you have when you want to invest in gold is to buy gold-mining penny stocks. Even the best penny stocks are usually risky since they can have as much as a 3-to-1 leverage to the gold’s spot price.
In case you only ant to trade the best penny stock, you should find the companies that have a high production, and that also have a reserve growth.