Do you currently have all of your retirement savings invested in the stock market? If you do, you are at risk of losing a lot of your hard earned savings to a stock market crash or an economic collapse.
Investing in gold and silver has always been a safe haven investment throughout the history of mankind. In this guide, we’ll explore the best ways to invest in gold & silver.
- Gold & Silver IRA
- Gold & Silver Stocks & Funds
- Gold Mining Stocks
- Gold Mutual Funds
- Gold Exchange Traded Funds (ETFs)
5 Best Ways to Invest in Gold and Silver
There are several different ways to invest in gold and silver, but the two primary methods are through gold and silver stocks and funds, or gold and silver bullion itself.
Gold & Silver IRA
Most investors don’t know that you can actually put gold and silver into your retirement account. This is possible by doing a rollover of a 401(k) or IRA to a self-directed IRA.
This type of IRA allows you to manage your own investments, while also investing in different asset classes besides stocks. Many retirees are taking advantage of these types of accounts because of their ability to diversity their retirement portfolios.
Gold and Silver Stocks & Funds
When we talk about gold stocks, we don’t mean stocks of companies that own large amounts of gold. Instead, they’re stocks in companies engaged in the business of mining gold.
Put another way, investing in gold stocks isn’t the same as investing in gold bullion itself. You’re investing in the companies that produce it, which makes gold stocks more like other stocks than bullion.
As the price of gold rises, profits for the mining companies increase as well. That increase in profits can be higher on a percentage basis than the increase in the gold price.
Gold Mining Stocks
But the opposite is also true. If the price of the metal falls, gold-mining stocks may decline by an even greater percentage. That’s because the decline in profitability will have the reverse effect.
Ultimately, gold mining stocks are much more speculative than the metal itself. While it’s true they can enhance the return on the gold portion of your portfolio, that increase is hardly guaranteed.
Gold Mutual Funds
The gold-mining sector is highly specialized. In fact, it’s usually only gold miners or people working for a gold mining company who have an understanding of how it works and what the forces are that affect stock prices.
Two of the most popular gold mutual funds are the VanEck Vectors Gold Miners ETF (GDX) and Fidelity Select Gold Portfolio (FSAGX).
Funds can be purchased and sold through major investment brokerage firms, or even directly through the fund family that the individual mutual fund as part of.
Gold Exchange Traded Funds (ETFs)
Gold ETFs are a more direct play on gold bullion itself. You can invest in gold ETFs, such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), which actually own gold bullion itself, and not mining shares.
Like mutual funds, they can be purchased through investment brokers or directly through the sponsoring fund family. Gold ETFs are a very convenient way to own the metal itself.
Why should I invest in gold and silver?
There are several compelling reasons to invest in gold and silver:
- Very long history as both a store of value and a medium of exchange. Gold and silver serve as both because they have represented money for thousands of years. While they haven’t carried the same status in recent decades, the much longer historical trend is extremely well-established.
- Industrial applications – 72% of gold used in the United States is for jewelry and electronics, while 51% of silver is used in electronics, photography, and jewelry and silverware.
- Countercyclical investment value – This is probably the most compelling reason to own gold and silver, but especially gold. Though gold doesn’t move countercyclical to stocks on an exact basis, it’s absolutely a “flight to quality” asset.
What are my downsides for investing in gold and silver?
At the beginning of this guide we answered the question, why invest in gold and silver? Pointing out the advantages.
But to give a full presentation of the facts, we also need to discuss the downsides, and there are a few:
- Gold and silver don’t provide a cash flow. Neither pays interest and dividends, so the entire play will depend upon a rise in value. Gold-mining stocks are sometimes the exception, since some pay dividends.
- Central bank sells gold – The price of gold remained relatively flat during the 80s much of the 90s. But in the late 90s, central banks began selling off reserves.
- The low interest rate/rising stock market environment may continue a few more years. If it does, you probably won’t see much return on your metals position.
- An interest rate spike – The interest rate spike of the early 1980s put a lid on the 1970s boom in precious metals prices and the gold market in particular. Should the same situation play out again – even during a time of economic and financial turmoil – it could have the same effect.
Conclusion
One of the biggest problems confronting retirees in recent years – both the currently retired and those soon-to-be – is low interest rates.
Those low returns are forcing retirees into one of two strategies:
- Either drain down principal to cover living expenses, or
- Invest heavily in stocks for greater returns.
Withdrawing principal on a regular basis opens the potential to outlive your money. And investing heavily in stocks raises the prospect of losing a substantial amount of investment capital in a market crash or a prolonged bear market.
Investing a small portion of your portfolio in gold and silver is increasingly looking to be a prudent strategy for dealing with what’s becoming a very uncertain future.
And when you’re either a retiree, or soon to be, you can’t afford to ignore that instability.