3 affordable ways to invest in gold
Investors have long considered gold a safe haven asset that's helpful in times of economic uncertainty, making it particularly attractive in today's inflationary environment.
"Gold has historically done well in periods of high inflation, geopolitical tensions, market crashes, and dollar weakness. It acts as insurance," says finance executive and author of The Finance Newsletter, Andrew Lokenauth.
However, it's not only recommended in turbulent times. Gold can be a sound investment in any type of economy as it's a resilient store of value and an effective portfolio diversifier. Most advisors recommend investing up to 10% of your portfolio into alternative assets like gold.
But how should you go about it? Gold investing can be tricky because various options exist, each with different benefits, risks and costs. As such, it's helpful to compare the costs of gold investment options to understand which are the most affordable.
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3 affordable ways to invest in gold
Gold, being the precious metal and in-demand asset that it is, requires secure transportation, safe storage and often insurance. If you store the metal yourself, you're responsible for the associated costs and carry the risk. Alternatively, you can entrust the above to a third party and/or invest in gold indirectly through options like gold ETFs, gold IRAs and gold mutual funds. Here's how the costs stack up.
Gold type | Cost type | Cost |
Gold ETFs | Annual fee, paid out of your investment. | Average expense ratio: 0.61%; Range; 0.09% to 1.19% |
Gold IRAs | A one-time account setup fee, an annual administrative or custodial fee, storage fees and wire fees. | Average expense ratio: 0.72% |
Physical gold | Storage, security, insurance and transportation | Average expense ratio: 0.74%; Range: 0.29%- 1% (plus transportation) |
Gold mutual funds | Brokerage fees | Average expense ratio:1.26%; Range: 0.46%- 2.26% |
Gold ETFs
Out of the four gold investment options above, gold ETFs came out on top in terms of affordability. The cost of an ETF comes from an annual fee that gets paid out of your investment. In reviewing a range of gold ETF options, expense ratios ranged from 0.09% up to 1.19% and averaged 0.61%. Being so, by shopping around and comparing gold ETF returns and costs, there's potential to find low-cost, lucrative options that beat other gold investment avenues. Plus, they also offer a few other benefits.
"Gold ETFs eliminate the need for secure storage and insurance typically associated with owning physical gold, reducing potential logistical challenges and costs. Moreover, they provide a high level of liquidity, enabling investors to buy and sell shares throughout the trading day on stock exchanges, ensuring quick access to their funds," says Jeff Mains, CEO of Champion Leadership Group.
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Gold IRAs
Gold IRAs come with a variety of costs such as an account setup fee, annual administrative or custodial fees and storage and wire fees. While the fee structure is more complex than that of gold ETFs, the estimated average expense ratio is just 0.72% on a $25,000 investment, according to GoldCo. As a result, Gold IRAs can also be an affordable option worth considering, especially if you're looking for tax advantages.
Physical gold
Purchasing physical gold requires arranging for transportation, storage, security and insurance. You're responsible for ensuring that the gold you have is safe. However, you can outsource that responsibility to reputable companies experienced in handling precious metals.
Gold storage companies often offer security and insurance as part of the package. The average expense ratio from a sample of companies came out to about 0.74%, which isn't far from the costs of the other gold investment options. However, you're also responsible for the safe transportation of the gold, which comes with additional costs. For reference, the cost to ship and insure 30 ounces of gold from Bullion Values to Clovis, CA via FedEx Standard Overnight is currently $148.78.
"Physical gold does ensure tangibility but incurs storage costs, which can range from around $50 to $200 per year or more, depending on the company you use. Gold ETFs provide gold exposure without physical storage...The choice between them depends on an investor's preference for liquidity versus physical possession," says Jamie Thorncliff, investment manager and researcher at Gold IRA Investment Guy.
Which gold investment is best for you?
The best gold investment for you will depend on your preferences and the deals you can find. After reviewing the costs of the various options above, it's clear that there are competitive alternatives for each gold investing route. Do your research and consider consulting a financial advisor to determine the right path for you. Get started here now!
