How to Invest in Gold
Studying how to invest in gold is a sound economic idea at the present. With certain currencies around the globe taking big hits, there’s lots of buzz about investing in gold these days, and for good reason. Gold holds its value over time much better than cash or common interest available at a bank. Gold is used as a hedge investment against inflation and is the perfect way to store wealth over time.
Though gold has had its ups and downs on a micro scale, long-term investors see gold as a smart and fairly conservative investment. The reason gold holds value over time better than many other investments is that the supply of gold is limited and constrained. The world’s gold supply increases at a snail’s pace as gold is mined little by little.
If you’re wondering how you can invest in gold, there are two simple ways to do it and the amount of the investment for both methods is variable.
These gold exchange trade funds, called ETFs for short, are like regular mutual funds that can be traded like a stock.
There are many ETFs that are nothing more than funds that purchase, store, and even insure physical supplies of gold. One of the benefits of investing in gold through an ETF or mutual fund is that you don’t have to worry about the storage and maintenance of the physical supply of gold yourself.
You can purchase gold for you own storage (more on that below), but ownership of physical gold stocks is a big risk — what if it’s stolen? You could store it at a storage facility or bank, but these investments require even more money against your bottom line. Investing in a gold-based ETF is like investing in gold without the headache of storage and ownership.
Tax Laws and Gold ETFs
Remember that buying into gold exchange trade funds means you’ll be liable for a different set of tax laws. Unlike investing in mutual funds or stock, the tax on collectibles like gold is different, and the IRS will ensure you pay it.
If you hold the same gold ETF for over a year, for example, it is taxed at a “special collectibles” rate of 28% — much higher than the capital gains rate of 15%. One easy way around this payment is to hold your gold ETF fund in a Roth IRA, which is tax-free. Still, that’s a lot of trouble to go through for a gold investment. For some investors, it isn’t worth the hassle.
Owning Physical Gold
ETFs and mutual funds are not the only ways to invest in gold. Many people are suspicious of the ETF and mutual fund market, so they prefer to own gold they can physically hold in their hand. If you do decide to invest in gold coins, please “do your homework” beforehand and find yourself a reputable gold dealer.
Remember that you’ll need to store your gold safely — consider a safe deposit box at your bank.
When considering an investment in gold, remember that, like any investment, there is an element of risk. The price of gold moves around a lot in the short term.
In 1980, for instance, an ounce of gold went as high as $800 per ounce or more while just a year later it was valued at just around $300 per ounce. Unlike tech stocks and corporate funds, you know gold will always rebound in value. Don’t look too short term when investing in gold . . . prepare to hold on to your investment for at least a decade.