Types Of Gold Investments: The Basics For Beginning Investors

Posted on: 25 April 2016

If you're looking for a way to diversify your investment portfolio, you may be considering buying some gold. This precious metal's value has gone up and down many times over the years, but one thing has remained certain: after its value drops, it always goes back up again. Thus, as long as you're careful to buy gold when the value is low and sell when it is high (as with any investment), you stand to make a decent profit by investing in gold. But there's more than one way to invest in gold. Here's a look at the most prevalent options.

Direct Legal Ownership of Gold

Physically purchasing and storing gold is perhaps the best-known method of investing in gold. You can purchase gold coins, bars, and jewelry for individual sellers, hold onto these items until the price of gold goes up, and then sell the items for a profit. A downfall of this type of investment is that your gold may be prone to theft. If you buy physical gold, make sure it is covered under your homeowner's insurance policy so that you can recoup the value if it's stolen. Keep in mind that some insurance companies will only cover a certain value in gold. If you buy gold in excess of your insurance company's coverage cap, keeping it in a safe deposit box at the bank is an option.

Gold-Backed Securities

If you're not interested in shopping for and selling physical gold, investing in gold-backed securities may be a good fit for you. Gold-backed securities are bonds that are linked to the price of gold. If the price of gold goes up, the value of your security will go up. This option not only eliminates the hassle of buying and selling gold, but it also allows you to liquidate your investments more quickly. Instead of waiting for a buyer to buy your gold, you just contact your fund manager and ask to sell. The downfall to this type of gold investment is that you will pay a fee to the fund manager who oversees the securities. Always shop around to find a gold-backed security with low fees so you can maximize your profits.

Gold Mining Funds

More risk equals more reward! If you're willing to make a more risky investment for a chance at some remarkable profits, consider investing in gold mining funds. Basically, you'll invest your money in a company that is mining for gold. When they obtain gold, the value of your investment will increase depending on the amount of gold discovered. If a lot of gold is mined, you could make a huge profit -- but if little to no gold is found, you will lose most of your investment.

Investing in gold is a good way to diversify your portfolio. Talk to a financial advisor to learn more about these gold investment options and to determine which is the best fit for your needs.