Gold has long been valued as a safe haven asset and portfolio diversifier due to its ability to retain value during times of economic uncertainty. In recent years, investing in gold has become increasingly popular among individual investors looking to hedge against risks like inflation, currency devaluation, and stock market volatility.
For beginners, knowing where to start can be overwhelming given the variety of ways to gain exposure to gold. Whether your goal is to hedge your portfolio, preserve wealth or simply diversify your assets, this guide provides the foundational knowledge you need to make informed decisions and start investing in gold in a strategic way. Let’s get started!
The Timeless Value of Gold
What makes gold such a prized commodity? The yellow metal has intrinsic qualities that provide its enduring appeal:
Before we dive into the specifics of how to invest in gold, it’s important to understand the basics of what makes gold a unique asset class and why it deserves consideration in an investment portfolio. Here are some of the key characteristics of gold as an investment:
Tangible Asset – Gold is a real, tangible asset that exists physically in the form of coins, bars and jewelry rather than just on paper. This gives gold an inherent value.
Limited Supply – The amount of gold in the world is finite. Gold is difficult to mine and new supply cannot be easily created, unlike paper currencies.
High Liquidity – There is a global market for buying and selling gold, making it easy to liquidate gold when needed. The high trading volumes also help minimize the bid-ask spread.
Safe Haven Appeal – Gold is viewed by investors as a store of value and safe haven in times of market volatility and economic crises. This steady baseline demand supports gold prices.
Inflation Hedge – Historically, gold has served as an effective hedge against inflation because its price tends to rise along with the cost of living.
Portfolio Diversifier – Gold exhibits a low correlation with stocks and bonds. Adding gold to a portfolio can therefore enhance diversification and reduce overall risk.
By understanding gold’s unique inherent qualities and long-standing role in the global financial system, we can better appreciate its value as a strategic investment asset.
Benefits of Gold for Investors
Now let’s explore some of the major benefits you stand to gain by owning physical gold or gold-based assets:
Hedge Against Inflation
- Gold has a proven track record over thousands of years of retaining and growing its value alongside inflation. When the cost of living rises, gold prices tend to rise as well which helps protect your purchasing power.
- The prices of gold and stocks tend to move independently from each other. Adding gold to your portfolio provides an alternative asset that can balance out the volatility of the stock market.
Preservation of Wealth
- Gold can serve as a way to preserve the wealth you’ve accumulated over your lifetime and transfer that value to future generations or charities. The liquidity of gold makes it easy to pass on.
- There is established demand for gold around the world which gives it a baseline level of value and makes gold easy to exchange for local currencies or other assets.
- You have full ownership rights when you possess physical gold coins and bars vs. paper-based gold investments. This provides security during times of crisis.
No Counterparty Risk
- Physical gold owned outright has no counterparty or default risk, unlike paper contracts or certificates that rely on another entity to fulfill their obligation.
By understanding these benefits, you can better appreciate gold’s role within a diversified investment portfolio focused on asset preservation and risk management.
Risks and Drawbacks of Gold Investment
Of course, there are also some risks and drawbacks to be aware of when investing in gold:
- The price of gold can fluctuate sharply over the short-term which may not align with your investment time horizon. Patience is required.
- Physical gold does not provide any regular dividend or interest payments like stocks and bonds do. There is no income generated.
- You must provide secure storage for physical gold in a safe, vault, or safety deposit box which entails some inconvenience.
- Buying and selling physical gold incurs transaction costs like dealer commissions, shipping fees, and insurance which impact your net purchase price.
- Gains on physical gold are subject to capital gains taxes whereas gains in a gold IRA or other paper-based gold investments are tax-deferred until sold.
As with any investment, there are trade-offs to consider when looking at gold. But for most investors, the diversification benefits tend to outweigh the potential drawbacks.
Ways to Invest in Gold for Beginners
Now that you understand the basics of gold as an asset class, let’s explore the various ways a beginner can invest in gold today:
Physical Gold Bullion Coins and Bars
The most direct way to invest in gold is through purchasing physical bullion products, including:
- Gold coins like the American Gold Eagle, Canadian Gold Maple, and South African Krugerrand
- Small gold bars weighing from 1 ounce to 1 kilogram
- Gold rounds (circular discs) from reputable mints and refineries
Physical gold provides the most direct exposure to gold prices and true portfolio diversification. Owning coins and bars also hedges against any potential currency collapse. The downsides are storage, security, and transaction costs. Popular retailers selling gold coins and bars include APMEX, JM Bullion, SD Bullion, and Money Metals Exchange.
For millennia, gold jewelry has been a traditional way of owning gold and hedging against inflation. The markup on jewelry tends to be high so it is not the most cost-effective investment option. But the ability to enjoy wearing beautiful gold jewelry provides a pleasurable way to incorporate some gold into your portfolio.
Gold ETFs (Exchange Traded Funds)
Gold ETFs are exchange-traded funds that aim to track the price of gold. They are traded on stock exchanges just like regular stocks and can be purchased through most brokerages. Each share represents fractional ownership in physical gold held by the fund. Popular gold ETFs include GLD and IAU.
Gold Mutual Funds and Index Funds
Mutual funds invest in a basket of securities like stocks and bonds, while index funds aim to mimic the returns of a specific index. Some mutual funds and index funds include gold companies, gold ETFs, gold futures, and physical gold. They provide easy diversification into gold.
Rather than own physical gold, you can invest in the stocks of gold mining companies. When gold prices rise, their profitability generally increases as well. However, gold stocks do not always move in tandem with the gold price. Leading gold mining stocks include Newmont Corporation, Barrick Gold, Agnico Eagle Mines, and Kirkland Lake Gold.
Gold Futures and Options
Gold futures and options are paper contracts that allow you to speculate on gold prices without owning the physical metal. Futures obligate you to buy or sell gold at a set date and price. Options give you the right but not the obligation to buy/sell gold futures. These are advanced derivatives that carry significant risk.
A gold IRA is a self-directed Individual Retirement Account that allows physical gold bullion to be held within the account. The physical gold is stored at a custodian on your behalf to ensure IRS compliance. Gold IRAs provide tax-advantaged exposure to gold during retirement.
Mining Streaming and Royalty Companies
Rather than own mines directly, some companies provide financing to miners in exchange for gold production or royalties. This avoids many of the operating risks involved in running mines. Top companies include Wheaton Precious Metals, Royal Gold, and Franco-Nevada.
The above options provide a diverse selection of ways to invest in gold for beginners who are just getting started. Your specific needs and investment goals will determine which gold investment vehicles are most appropriate for your portfolio.
Getting Started with Gold Investment: Step-by-Step
Ready to get started buying your first gold investment? Here is a step-by-step process:
Step 1: Decide Your Gold Investment Amount
Determine how much of your overall portfolio and net worth you are comfortable allocating to gold. Many experts suggest limiting gold to no more than 5-20%. This will inform how much you invest.
Step 2: Choose Your Gold Investment Products
Select the best gold investment options for you from the list above based on your desired exposure, risk tolerance, and investment timeframe. Physical coins, mutual funds, and ETFs are common starters.
Step 3: Find a Reputable Seller or Broker
For physical gold, choose an established dealer like APMEX or JM Bullion. For funds and stocks, any major brokerage will do. Only work with highly-rated companies.
Step 4: Execute Your Gold Purchase
Place your order to buy your selected gold investment product. Take delivery of physical gold shipments or add new positions to your portfolio statement.
Step 5: Make Plans for Secure Storage
If you bought physical gold, decide on storage like a personal safe, bank safe deposit box, or specialized depository. If you purchased paper gold assets, they will be held in your brokerage account.
Step 6: Monitor Your Investment
Track the performance of your gold investment over time. Adjust your holdings periodically to maintain your target allocation.
With these steps, you can comfortably navigate the process of establishing your first gold investment.
The variety of choices allows investors to choose their preferred option based on their individual needs and risk tolerance.
Best Practices for Investing in Gold Safely
Here are some additional tips for beginners looking to invest in gold:
- Diversify across multiple gold investment vehicles to find a balance that aligns with your needs
- Consider holding some physical gold coins or jewelry for portfolio insurance in the event of a crisis
- Only work with reputable, transparent gold dealers and brokers to avoid scams
- Read prospectuses thoroughly to understand management fees for funds
- Compare storage fees if considering a gold IRA or other gold account
- Be wary of aggressive gold salespeople pushing unnecessary high premium coins
- Start small – dollar cost average over time rather than buying all at once
- Enlist a financial advisor to incorporate gold appropriately into your investment portfolio
- Maintain adequate insurance coverage for high-value physical gold holdings
Following prudent precautions will help you include gold safely as part of a diversified investment strategy.
What is the Best Strategy to Invest in Gold?
The ideal gold investment strategy involves diversification across multiple asset types. According to conventional wisdom, investing 5-20% of your portfolio in gold is recommended. One strategic approach is:
- 50-70% in stocks and stock funds for growth
- 20-30% in bonds and bond funds for income
- 5-20% in gold via funds and physical bullion
- 0-5% in other alternative assets like real estate
Rebalancing periodically maintains your desired allocation. This diversified asset allocation strategy allows you to incorporate gold in a way that matches your risk profile.
How to Invest in Gold Online
Purchasing gold ETFs, mutual funds, and mining stocks can easily be done through any online brokerage account like Fidelity, E-Trade, Charles Schwab, or TD Ameritrade. Look for commission-free gold ETFs to avoid trading fees. For physical gold, trusted online dealers like APMEX, JM Bullion, and SD Bullion allow you to buy coins and bars online. Compare shipping fees, options, and premiums. A self-directed IRA can also be opened online with a gold IRA custodian to fund with physical gold.
Is it Safe to Invest in Gold Now?
Investing in gold is generally considered safe for a small portion, 5-20%, of your overall portfolio. Gold tends to move independently from stocks and bonds, making it an effective portfolio diversifier in any market environment. Because gold pays no yield and has potential volatility, limiting exposure to a minority allocation keeps a portfolio balanced between growth, income, and risk management. Consult with a financial advisor for guidance on appropriate gold exposure for your individual risk tolerance and investment timeframe.
Best Practices for Investing in Gold
Here are some other best practices to consider:
- Weigh storage and insurance costs for physical gold, which can eat into returns
- Use dollar-cost averaging and portfolio rebalancing to systematically build positions over time
- Consider holding physical gold as portfolio insurance against crises versus paper claims alone
- Review pricing frequently to find low premiums when buying physical bullion
- Always account for dealer commissions and fees into cost basis calculations
- Enlist professional financial advice to ensure gold fits into your overall investment strategy
By following prudent precautions, beginners can thoughtfully incorporate gold within a well-diversified portfolio.
Key Considerations for Beginners
Here are some additional key points for investors just getting started:
Finding the Right Gold Investment Amount
One common question from beginners is how much to invest in gold. While there are no hard and fast rules, most experts recommend allocating 5-20% of your total portfolio to gold and other precious metals. A moderate starting point might be 10% of your portfolio held in gold ETFs, mutual funds, and physical bullion coins. The right gold allocation depends on your risk tolerance and investment time horizon. Periodically rebalance to maintain your target gold exposure.
Physical Gold vs. Paper Gold
Physical gold that you own outright provides direct exposure to the gold price. But “paper” gold like ETFs, mining shares, futures, and mutual funds offer ways to participate in the gold market without needing to store bars and coins. Blending physical coin ownership with paper gold investments can provide a balanced approach. Physical gold keeps some assets outside the financial system as a contingency while paper gold offers more liquidity.
Choosing the Right Gold Coins
For beginners buying their first coins, opt for common bullion coins like the American Gold Eagle, Canadian Maple Leaf, or Austrian Philharmonic. Avoid collectible numismatic coins, which carry higher markups. One-ounce size offers the most affordable entry point. Scrutinize dealers to find competitive premiums over the underlying gold spot price. Comparison shop online dealers before placing your first order.
Gold IRA Investing
A gold IRA rollover allows you to fund your Individual Retirement Account (IRA) with physical precious metals like gold coins and bullion bars instead of paper assets. The metals are stored for the IRA account holder by an IRS-approved custodian. Gold IRAs provide tax-advantaged exposure to gold for retirement savings. Do your due diligence selecting a reputable precious metals IRA custodian.
Seeking Professional Guidance
It’s prudent for beginners to consult an independent financial advisor to discuss how to appropriately incorporate gold within the context of your broader investment portfolio and retirement planning. While past performance doesn’t guarantee future results, judicious gold exposure has historically provided useful risk management and diversification.
With its role as an inflation hedge and portfolio diversifier, adding some exposure to gold can serve as a prudent move for beginners seeking to build a balanced, risk-managed portfolio. By considering both the benefits and risks, new investors can make an informed decision about whether pursuing gold aligns with their individual investment objectives and risk tolerance. Seeking professional financial advice is recommended to incorporate gold appropriately into your broader investment and retirement planning strategy.
Frequently Asked Questions
How do I get started investing in gold?
For beginners, exchange-traded funds (ETFs) like GLD and IAU provide a simple way to gain exposure to gold prices without needing to store physical bars. You can buy these ETFs commission-free on many investing platforms. Additionally, mutual funds from reputable firms handle stock selection in gold miners to reduce research. Later on, allocating a small portion to physical gold coins provides a tangible asset. Focus on low-cost, diversified funds when first starting out.
What is the best way to invest in gold for a beginner?
The best gold investments for beginners are generally gold ETFs, index funds, and mutual funds that provide diversified exposure under professional management. They avoid the need to research individual miners or store physical bars. Leading low-cost, beginner-friendly picks include GLD, IAU, SGOL, the Sprott Gold Miners ETF, and gold-focused mutual funds from Vanguard, Fidelity, and other major firms.
How much should I invest in gold?
There is no set percentage, but 5-20% of your portfolio is a reasonable starting allocation according to most financial experts. Conservative investors might do 10% as a moderate gold allocation, while aggressive investors could opt for 15-20%. The amount depends on your risk tolerance, time horizon, and how you want to use gold in your portfolio – as an inflation hedge, crisis protection, or diversifier. Revisit your allocation annually.
Should I buy physical gold coins or gold ETFs?
For beginners, gold ETFs provide cost-effective, diversified exposure that is easy to buy and sell through regular brokerage accounts. Physical coins require researching dealers and securing storage but provide direct ownership. Blending ETFs with some physical coins allows beginners to get started while also owning a hard asset. Over time, consider adding more physical exposure after gaining experience.
What gold coins should I buy as a beginner?
Opt for widely traded bullion coins minted by governments like the American Gold Eagle, Canadian Gold Maple Leaf, Austrian Philharmonic, or South African Krugerrand in 1 oz size. Avoid rare collector coins with high markups. Focus only on coins priced close to the spot gold value. Compare premiums among dealers. Consider buying a few different coins for diversity rather than just one type.
How do I buy physical gold coins as a beginner?
Research top reputable dealers like APMEX, JM Bullion, SD Bullion, and Money Metals Exchange. Browse their selection of bullion coins meeting IRS standards for precious metals IRAs to identify market-priced coins with low premiums. Place a small test order to start. Compare shipping costs/times, payment options, and customer service among dealers to find one matching your needs.
Should I invest in a gold IRA?
Funding an IRA with physical gold and other precious metals can provide tax-advantaged exposure to gold within your retirement accounts. To convert your existing IRA to gold, follow the steps to open a self-directed IRA with an IRS-approved custodian who specializes in precious metals IRAs. They will facilitate transferring your current IRA funds to the new account which can then buy IRS-approved coins stored at their secure vaults on your behalf.
How much does it cost to invest in gold?
The cost to invest in gold varies by vehicle. Gold ETFs have tiny expense ratios under 0.5%. Mutual funds range from 0.5-1.5%. Physical coins have dealer premiums anywhere from 5-10% or more over the melt value. Shop for competitive pricing from reputable dealers. Account for any annual storage/insurance fees for physical gold. Investing in miners also entails stock trading commissions. Compare total costs.
What percentage of my portfolio should be in gold?
A reasonable starting allocation is 10-20% of your total portfolio in gold and other precious metals combined. Conservative portfolios might aim for 5-10% in gold. More aggressive investors could allocate up to 20% in gold and precious metals.
What is the minimum amount I need to invest in gold?
There is no required minimum. You can start investing in gold with a single 1 oz gold coin if you want exposure to physical gold bullion. Ultimately your gold investment amount should align with your budget and total portfolio size. Think long-term.
Should I buy physical gold or gold stocks?
Physical gold provides direct exposure to gold prices and true portfolio diversification. Gold stocks can offer additional upside but also add more risk. Holding some physical coins/bars along with gold mining stocks provides a balanced approach.
Is gold a good long term investment?
Yes, gold can serve as an excellent long-term portfolio diversifier and inflation hedge. Its history shows it helps preserve purchasing power over extended periods of time. Long-term investors may consider putting 5-20% of their portfolio into gold.
Should I invest in gold now?
Trying to time short-term movements in the gold market is extremely difficult. Instead of market timing, consider dollar-cost averaging into gold over a 6-12 month period to get started. Adding some gold provides lasting diversification.
What is the best way to buy gold?
Low cost gold ETFs offer easy liquidity and diversity. Mutual funds provide managed gold exposure. Physical coins and bars are tangible holdings. Each gold investment vehicle has pros and cons to weigh based on your needs.
What percentage of my portfolio should be in precious metals?
A 5-20% allocation to gold and other precious metals combined is generally recommended. Conservative investors might do 5-10% in precious metals. More aggressive investors could aim for 15-20% precious metals allocation as part of a diversified portfolio.
Who should invest in gold?
Anyone who wants portfolio diversification, a hedge against inflation, or reduced risk through asset class exposure can invest part of their portfolio in gold. It serves investors across the risk tolerance spectrum when appropriately allocated.
Should I buy coins or bars?
For physical gold, coins provide more liquidity and come in smaller divisible sizes. Bars offer lower premiums per ounce on larger formats like 10 oz and 100 oz. Collectible numismatic coins have extra value to collectors beyond just bullion content.
In another related article, Exploring Individual Retirement Arrangements (IRAs): A Comprehensive Guide