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Before asking "how to invest in gold," one should ask "why invest in gold?" Especially right now, when investing in gold is a better option than ever.
Investing guru Warren Buffett helps to answer that question with his famous line, "Someone is sitting in the shade today because someone planted a tree a long time ago."
Gold is the tree that provides an investor shade today because that investor planted it long ago. It is considered a "safe haven" investment that weathers geopolitical turmoil and economic uncertainty.
It's true that in 2013, gold bugs saw the yellow metal's price drop 24% against the U.S. dollar, marking the third-worst decline in the history of gold since 1975.
But gold stocks in 2014 are being fueled by gold prices' climb. The yellow metal has rebounded from late December into mid-March, tacking on about $200 an ounce, or nearly 17%.
"To a large extent I think the bears were exhausted, and most (if not all) sellers had finally sold," Money Morning Resource Specialist Peter Krauth said. "Gold was coming off a technical low and sentiment extreme around the $1,190 price range."
The bullish gold market makes now a better time than ever to cash in on gold's rise.
But how? There are many ways investors can tap into profits from the yellow metal, such as:
- Owning physical gold like bars and coins
- Gold Mutual Funds
- Exchange-Traded Funds (ETFs)
- Investing in gold mining companies
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Here we examine one method for how to invest in gold, using gold mutual funds.
How To Invest In Gold with Gold Mutual Funds
Gold mutual funds are managed by professionals who analyze and monitor the movement of gold and invest accordingly in bullions and equities.
Some popular mutual funds with high returns are:
- Franklin Gold and Precious Metals Fund Class A (MUTF: FKRCX)
- Wells Fargo Advantage Precious Metals Fund Class A (MUTF: EKWAX)
- Fidelity Select Gold Portfolio (MUTF: FSAGX)
FKRCX has a year-to-date total return of around 15.66%, making it one of the top performing gold mutual funds. The fund invests around 80% of its net assets in companies that mine, produce, and otherwise deal with gold, primarily outside the U.S. Its primary goal is capital appreciation – current income is a secondary consideration. FKRCX is rated three out of five stars by Morningstar.
EKWAX focuses on long-term capital appreciation. At least 80% of its investments are diversified among precious metals, especially gold-related exploration, development, and production. The fund has a year-to-date return of 12.96%. Morningstar rates the Wells Fargo Advantage Precious Metals Fund Class A four out of five stars, making this a top gold mutual fund to consider when asking "how to invest in gold."
FSAGX also seeks capital appreciation, with 80% of its assets in securities of companies engaged in gold-related activities, and in gold bullion and coins. The fund primarily invests in common stocks and also in certain precious metals. Year-to-date, FSAGX has gained nearly 14%. It's rated three out of five stars by Morningstar.
One advantage to investing in gold mutual funds is that all the investor need do is select and invest in a mutual fund of choice. The rest of the research and monitoring is done by the fund managers. A single call will provide detailed information on the status of your funds, and assistance will be provided by your fund managers in buying or selling your fund units.
Additionally, as opposed to ETFs where each transaction costs a brokerage fee, there is none for gold mutual funds.
One of the disadvantages of investing in mutual funds is higher management costs.
Additionally, they are more complicated in terms of quickly reacting to gold prices. When deciding "how to invest in gold," know that gold mutual funds are much better suited to the long-term gold investor, and not for fast-paced, reactive day traders.
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