June 15, 2024

    Physical Gold or ETFs: What’s a Better Investment?

    Think fast.

    The stock market is imploding, the indexes are taking a downward turn, and the price of everything is halfway to the moon. How do you protect your investments when it feels like the world has gone crazy?

    It’s been said that people have been using physical gold as money since 550 BCE. And with a well-established history of retaining value and being considered a precious metal, gold is as close to a sure-fire investment as it gets. 

    But even after the choice to purchase gold has been made, there’s a question that every gold investor has to answer:

    Should I buy physical gold or an ETF?

    Physical gold has an impeccable track record. But ETFs are convenient, accessible, and easy to buy. 

    Grab a pen and get comfortable. We’re going to try and help you settle the gold vs ETF debate. 

    What Are the Benefits of Physical Gold?

    When people hear the words, “I’m going to buy some gold.”, a hefty percentage will immediately start to picture jewelry, coins, and gold bars. Just because this is how the investment has traditionally been handled, however, that doesn’t necessarily mean that it’s the right move for your portfolio.

    Why do some investors favor physical gold? Is the push for bullion all hype? Here are some key advantages of purchasing physical gold: 

    • Long-term price stability
    • A market where you can always sell
    • Tangible asset ownership
    • Protection from inflation

    And that’s not all. Thanks to the internet, you can quickly and easily purchase gold bars at sprottmoney.com and similar places without leaving your house. This increased level of accessibility makes it easier for physical gold investors to purchase more precious metals over time.

    What Are the Downsides of Physical Gold?

    Okay. We’ve just talked about the benefits of purchasing physical gold and the advantages are definitely worth a second look. However, alongside this powerful list of benefits, physical gold does come with certain disadvantages. 

    Some of the reasons why investors opt partially or completely out of physical gold include:

    • Storage can be difficult to handle
    • It’s not a short-term investment
    • Relatively low gains compared to blue-chip stocks and indexes
    • Being vulnerable to theft

    As you take a closer look at what physical gold can do for your portfolio, you’ll want to carefully consider both your resources and your general investment strategy. If you have limited space or you’re financing your purchase through your 401k, to name two examples, you may find yourself budgeting for storage costs or being forced to follow different rules and procedures. 

    Physical gold is a proven value store and an invaluable hedge against inflation. But there’s still some logistical work involved with purchasing and owning it as an asset.

    Why Buy ETFs?

    Let’s say that you’re 100 percent sold on precious metals as an investment vehicle. That’s right. You’re all set to invest in gold.

    But the more you read up on the subject, the more you keep running into the same issue:

    You’re out of storage space, you don’t want to hire a custodian, and you just want a more convenient way to purchase gold. 

    Or maybe that’s not you. Maybe you’ve reached the limit of what your retirement savings will allow, but you’re still looking to buy more gold.

    Either way, however, the end result is the same — you want to explore your other gold investing options.

    ETFs, or exchange-traded funds, are investment vehicles that you can purchase on the stock market. They work kind of like a mutual fund in that the money comes from a pool of investors and they can be customized to track the value of a commodity like gold. On paper, a gold ETF will give you the benefits of gold without the hassle of owning it.

    Here are some common reasons why gold ETFs have a special appeal for many precious metal investors:

    • Purchases can be made through a standard trading account
    • Multiple companies, miners, and ETFs to choose from
    • No physical storage or maintenance concerns

    In short, gold ETF investments take convenience to another level. 

    What Are the Risks of Purchasing Gold ETFs?

    Despite the benefits that we’ve just listed, gold ETFs aren’t all sunshine and roses. Why? Because purchasing gold ETF shares isn’t exactly the same as tossing money at the S&P 500 or the Dow Jones.

    The drawbacks associated with gold ETFs include:

    • The value of gold isn’t the only factor that affects ETF value
    • Trader volumes can affect your ability to sell
    • Your lack of physical and literal ownership over the assets

    With gold ETFs, you have to do your research. All it takes is a gold mining scandal or a popularity drop for your portfolio to lose value or otherwise become difficult to liquidate. 

    Is It Better to Buy Gold or ETFs?

    As you weigh your investment options, you’ll quickly realize that there’s a lot to like about both physical gold and gold ETFs. But the right decision for your portfolio will depend on multiple factors like your storage options, your savings, and your willingness to hold on to your investment in the long run. For many investors, a combination of gold ETFs and physical gold may be the best option at their disposal.

    On a practical level, the question isn’t about physical gold vs ETFs. It’s about what’s best for your short-term and long-term investment needs.

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