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Looking to invest in gold?
GLD is the grand pooh-bah of the gold ETFs. But is it the best way to invest in gold?
Below we answer that very question in a brief, jargon-free, no-BS manner.
First, let’s take a quick look at why you’d even want to invest in gold.
There are a number of reasons why people say you should invest in gold. These include:
Have I bored you yet?
Let’s cut to the chase. The reason most investors add gold to their portfolio is because, over time, it tends to rise in value. And, also, when the stock market goes into the crapper, gold prices will often rise in value.
So it’s a good way to diversify your portfolio. And, during times when most of your stocks are sucking it up, it can make you feel better to see your gold investment rising in value.
There are a few main ways you can invest in gold.
One is to buy actual physical gold. Gold coins. Gold bars. Gold bullion.
This is certainly a good option. However, there are issues and costs involved with storing it safely. Plus, it may be more difficult to sell physical gold than some of the other options we discuss.
You can also invest in gold stocks. These tend to be companies that mine for, or process, gold. The downside here is you’re investing in a company, just like any other company whose stock you buy. And while these companies may benefit from rising gold prices, there’s no guarantee their share prices will follow the price of actual gold.
Which brings us to gold ETFs. Gold ETFs, particularly ones backed by physical gold, tend to follow the price of gold fairly closely. However, they do have fees associated with them that can cut into your profits.
On the other hand, ETFs are generally a more liquid kind of investment that you’ll be able to buy/sell more easily than, say, physical gold.
GLD, the SPDR Gold Trust ETF, is the biggest, most popular gold ETF around.
It’s been around for a while (since 2004), has over $60 billion in assets under management and its price tracks the price of gold fairly closely.
However, when I went shopping for a gold ETF for my portfolio, I didn’t buy shares of GLD.
I bought IAU, the iShares Gold Trust ETF.
It’s not as big (it has around $25 billion in assets under management). And hasn’t been around quite as long (it started in 2005).
But the main reason I chose IAU is due to its Expense Ratio (basically the annual fee you’ll pay to an investment company).
The expense ratio for IAU is 0.25% which is quite a bit lower than the 0.40% expense ratio for GLD.
And, because I plan to hold on to this investment for the longer term, that expense ratio matters.
See, part of the way you build your OWN nest egg instead of the nest egg of those on Wall Street is keeping your investing expenses and fees down. Because, over time, while those expenses and fees sound small, they add up to real money.
Money that’s better spent on a dream vacation or retirement instead of some Wall Street manager’s next yacht payment.
Sure, there are situations where the higher fee may be worth it. But, for the most investors, especially those investing for the long term, the lower you keep your fees, the higher your returns will be.
So that’s why I bought IAU instead of the more popular GLD option when adding a Gold ETF to my portfolio. If you wanna add gold to your portfolio, which ETF you decide is up to you.