Savvy investors understand the importance of diversification. Despite this, stocks, bonds and real estate take up the lion's share of media mentions and investment portfolios alike. Commodity exchange-traded funds (ETFs) are an excellent way to diversify outside of those big three investment classes.
Of all commodities, gold is especially alluring to many people — the physical asset has a mystique about it. As an investment, gold has a history of doing well when other asset classes falter. Unlike stocks, it is a physical item. But unlike another physical asset, real estate, it doesn't require a massive buy-in to begin investing.
Gold stocks and gold futures are excellent choices if you're considering bringing a commodity ETF into your investment strategy.
You'll now be faced with the challenge of finding the best gold mutual fund for you. We're cutting through the confusion to help you diversify your portfolio with confidence.
What are gold ETFs?
Gold ETFs are exchange-traded funds that let you invest in gold without owning the metal itself. Instead, these funds trade like stocks and either track the spot price of gold itself or invest in entities involved in the gold industry, such as gold mining companies.
Gold ETFs are an excellent option for investors who want exposure to the gold market and gold futures without dealing with shipping, storage and insurance.
Compare popular gold ETF options
While you’re reviewing gold ETFs, there are several important factors to consider: performance, expense and stability. In our review of popular gold ETF options, we utilized ETF.com for market performance and the individual fund managers' websites for specific fund information.
The commodity ETFs on our list are almost all ones that trade in physical gold. However, you might also look to gold mutual funds that have a position in gold mining companies.
We'll be sure to point out each fund's expense ratio, but note that all of the ETFs we have selected have ratios below the average of 0.58%.
Summary and performance overview accurate as of 11/17/2021.
Goldman Sachs Physical Gold ETF consists entirely of physical gold assets. AAAU has an inception date of July 26th, 2018, and presently manages assets totaling more than $433 million.
AAAU tracks the gold spot price minus trust expenses. The fund's physical gold assets are held at a secure vault in London. With an expense ratio of 0.18%, AAAU ties with GLDM as the second lowest-cost fund on our list.
Investors who appreciate a fund manager with broad market experience will find value in the oversight of Goldman Sachs.
How to invest in gold ETFs
If you're new to investing in gold ETFs, don't worry — it is very similar to investing in the stock market. There are no accreditation requirements, and many funds offer affordable entry points, so the barrier to enter into gold investments is low.
- Determine how much money you'd like to invest.
- Do your research. Gain a deeper understanding of the gold market as well as individual gold mutual funds you're considering. Take time to understand gold futures as well, as this is another investment strategy to consider.
- If you don't already have a brokerage account, you'll need to open one with a traditional brokerage or an online trading platform.
- Once you've opened your account and decided how much money you would like to invest in gold, you can buy shares of gold just as you would buy shares of stock.
- Prepare for the tax implications associated with gold investments. As with most other assets and investments, gold is taxable, so you'll want to plan accordingly.
Understanding gold ETF taxes
If you’re investing in a physically backed gold mutual fund, meaning your investment results in real gold with your name on it, the IRS views it as a collectible rather than a traditional investment.
You may not possess the gold, but you do own it. Tax rates on collectibles can be up to 28%, which is a bit more than the typical 20% capital gains rate of other investment classes.
To avoid the increased collectibles tax, you might consider investing in a gold mutual fund made up entirely of gold mining companies. You are exposed to the volatility of the companies within the fund and the gold market, but you won’t trigger the collectible tax by owning physical gold.
Gold ETFs vs. physical gold
There are two primary ways to invest in gold: physically holding it or owning it through a commodity ETF.
Gold ETFs do not require you to arrange shipment and delivery like physical gold does.
Both approaches give you diversification and exposure to the fluctuations of the gold market. Historically, gold does not follow the typical patterns you see with stocks, bonds and real estate.
The most significant differences come from the implications of owning the physical asset. For example, physical gold requires shipment and storage. It should also be insured.
ETFs trade on exchanges just like stocks, so you only need to connect with your brokerage account and purchase shares of the fund.
Convenience is perhaps the most significant advantage that ETFs offer investors. There is no need to arrange for shipment and delivery.
You’re signed up
We’ll start sending you the news you need delivered straight to you. We value your privacy. Unsubscribe easily.