Gold has long been a popular investment choice for those looking to hedge against inflation. With the current economic uncertainty caused by world events like the Russian invasion of Ukraine and China’s crisis with COVID-19, gold is only becoming more popular.
Today, not only are more people investing in gold than ever before but also in other financial tools that benefit from it, such as r Exchange-Traded Funds (ETFs). Gold ETFs could be a good fit if you want exposure to gold but don’t want to deal with the metal in your IRA.
Historically, ETFs have offered an affordable, easy, and effective tool for investors to diversify their stock portfolios.
By combining them with assets like gold and mining stock, ETFs can bring investors some of the benefits of gold in addition to those of ETFs. If you are wondering if investing in gold ETFs with an IRA is a good idea, this is the post for you.
What Are Gold ETFs?
Let’s start with the basics: What is an Exchange-Traded Fund?
As the name suggests, ETFs are funds (a bundle of investment assets) traded in exchanges. ETFs allow their holders to gain exposure to multiple companies and assets while simplifying their management and reducing the fees associated with trading.
Gold ETFs are just ETFs that are composed of gold-related assets and allow you to invest in gold without having to physically acquire and manage it. This is possible because gold ETFs can track the price of gold and invest in gold mining companies or companies that operate with gold.
This means you don’t have to deal with the bureaucracy, logistics, and fees associated with bullion, jewelry, etc. You can open an IRA, fund it, and start buying gold-based investments that aren’t physical gold.
Pros and Cons of Gold ETFs
The main benefit of investing in gold ETFs is the ease and convenience they bring to the table. However, there are many more benefits that most people tend to overlook when considering if they should invest in physical gold, mining gold stocks, or gold ETFs.
Gold ETFs bring investors the best of both worlds. They provide users with an easy means to diversify their portfolio to better track the movements of gold in the market, offer high liquidity, lower fees than investing in gold or individual gold mining stocks, and have high hedge potential.
The fact that professionals are in charge of managing the ETF is also a huge plus for new investors, as it ensures the quality of the underlying assets.
If you are looking to physically own gold, it is important to know that this won’t be possible with a gold ETF… even if it includes physical gold. While you can trade the fund to make a profit, it is not possible to trade it for the physical gold equivalent of your shares.
While this is not a problem if you understand the purpose of gold ETFs, many investors are not aware of this at the time of investing.
Paper Will Never be Gold
The main disadvantage of gold ETFs is that while you gain convenience by investing in a package of assets, you lose control over which ones you are investing in: it is either all or none.
Another disadvantage is the additional level of volatility that comes with investing in stocks instead of physical gold. This risk, however, is diminished in part by the diversification of your assets as an ETF is more likely to follow the market movement of gold than individual stocks.
To be sure, gold ETFs in highly rated gold IRA companies don’t give you the same advantages as physical gold, but they are worth considering if you don’t want to deal with the physical metal.
Disclaimer: This article is not intended to be a recommendation. The author is not responsible for any resulting actions of the company during your trading/investing experience.
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