Most investors are interesting in diversifying their portfolios away from the traditional stocks, bonds, and mutual funds. One great way to do this is to buy in particular commodities that you have a general knowledge of. One of these such commodities might be gold.
However, it can become difficult to just straight up buy gold when you are not used to trading in these kinds of markets. A good way to get around this confusion is to purchase a gold ETF (Exchange Traded Fund) in order to have a money manager put your money into the gold markets for you.
The advantages of an ETF over regular gold stocks
For those who want to invest in gold, most think that they would like to just invest in the gold stocks directly. After all, it is a lot cooler to just throw the name of a particular company out there when you are bragging about your investments. However, despite the bragging advantages, holding individual stocks is not something that should be attempted by the novice investor.
Holding a single gold stock can put you through times of strong and fast ups and downs in the market. This volatility can have the beginner selling at exactly the wrong times, and thus losing a nice chunk of their money. Holding a gold ETF lowers this risk significantly, because you are holding a number of different gold investments at the same time through the ETF. Therefore, if one goes down suddenly it is not the end of the world, because the others will help to offset it.
This isn’t to say that a gold ETF is the best gold investment to buy — it’s not. The best way to invest in gold is through gold coins, as we’ve talked about several times on this website. Still, a gold ETF is a financial tool in the investor’s toolbox, and can’t be ignored.
Some popular gold ETFs
Many different companies have joined in offering gold ETFs as one of there choices since the ETF has taken off in popularity. Some of the notable popular gold ETFs are: streetTracks gold ETF (GLD), Powershares double long gold ETF (DGP), and IShares gold trust fund (IAU):
- GLD: streetTracks gold ETF
- DGP: Powershare double-long gold ETF
- IAU: IShares gold trust fund
The differences between the three are minute, mostly it is a matter of company preference. However, you should always check into the particular holdings of any fund that you are considering investing in to make sure that it has everything that you want.