Secrets to Investing in Gold

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.

What Are Penny Stocks?

All penny stocks come with a degree of risk. Yes, even the best penny stock can be a risky investment opportunity for beginner investors, as well as seasoned veterans.

Penny stocks are stocks that are normally traded outside of the sanctions of the world’s major market exchanges, and are traded at relatively small stock prices, and, usually, they come with small market capitalization.

Penny stocks are known for being very speculative, as well as coming with a high degree of risk because of numerous factors that surround them. Some of these factors include a lack of liquidity, larger than normal bid-ask spreads, limited disclosure, as well as a lack of information and stock history.

These stocks are usually traded over the counter through OTC Bulletin Boards, as well as pink sheets.

Where Did Penny Stocks Come From?

The term penny stock has grown and evolved along with the market over time. While there was a time when any stock that traded for less than a dollar per share was considered a penny stock, new Securities and Exchange Commission (SEC) regulations have modified the penny stock definition to include all stock shares that are traded below the $5 range.

While the vast majority of penny stocks (including the best penny stocks) are not usually traded on the major market exchanges, there are a few cases of large companies that have shares trading below $5 while still on the main exchanges thanks to market capitalization.

This means stocks such as Curis Inc. (CRIS) – a small-scale biotech company – can have its penny stock listed on the Nasdaq. However, stocks like CRIS are not typical of a penny stock. Typically, a penny stock is indicative of a smaller company with highly speculative shares. These smaller companies are usually subjected to much more limited requirements when it comes to listing their stock, as well as much fewer filling and regulatory standards.

How are Penny Stocks Created?

Much like any other publicly traded stocks, penny stocks are created via the process of an initial public offering (IPO.) This means that in order for the penny stock to be created a company must first file a statement of registration with the SEC (though there are some situations where a company may qualify to be exempt from SEC registration.) While the company works with the SEC, it must also make sure that it meets the requirements of securities laws in the locations where they plan on selling the stock.

Once they jump through these hoops, the company may begin to solicit orders from prospective investors, and (if these choose to,) the company may apply to have their stock listed on a major exchange, or just have the stock trade on the Over-the-counter market (OTC.)

Small companies, as well as start-ups, usually issue stock as a way to start raising capital to help fund the initial growth of the company. While this process is a long, and costly one, issuing stock can also be one of the most efficient strategies for these companies to build this capital. Penny stocks tend to be the result of these capital-growing ventures, which means they can be very profitable, but also precarious.

When Does a Penny Stock Stop Being a Penny Stock?

There are a few things that can happen that would trigger a penny stock to change into a regular stock. If the company you have penny stock in issues new securities within an offering that is already registered within the SEC, or if it registers a preexisting class of securities with the proper regulatory body. These transactions result in the stock can be triggered into becoming a regular stock.

This change occurs because they then require the firm to obey periodic reporting and disclosure of business activities, financial conditions and company management to investors.