How to Buy a Gold ETF

Gold is a popular option for investors who want to diversify and protect against economic uncertainty. However, owning physical gold as bars or jewelry can create challenges with storage and liquidity. Gold exchange-traded-funds (ETFs), on the other hand, can offer an easier way to invest in gold without physically owning it. These funds can be bought just like shares of any public company. They generally track the price of gold, but may vary in performance, fees and liquidity.

If you want to add gold ETFs to your portfolio, a financial advisor can help you evaluate investment options and manage risks.

How to Invest in Gold ETFs

Gold exchange-traded funds (ETFs) can offer a convenient way for investors to gain exposure to gold without the need to physically own the precious metal. These financial instruments are traded on stock exchanges, much like individual stocks, and they track the price of gold. This makes them an attractive option for those looking to diversify their investment portfolios during periods of stock market volatility and inflation.

Investing in gold ETFs is straightforward. Any investor with a brokerage account can purchase shares of a gold ETF, just as they would with any other stock. Before buying, however, you should research and compare different gold ETFs as they can vary in terms of expense ratios, liquidity and the amount of gold they hold.

Some ETFs may invest in shares of gold mining companies, while others are directly backed by physical gold.

Steps to But Gold ETFs

If you want to buy gold ETFs, here are five general steps to help you get started:

Open a brokerage account: Choose a reputable brokerage that offers a wide range of investment options, including ETFs. If you already have an account, you can use your existing one.
Research gold ETFs: Look for ETFs that track the price of gold, such as those that hold physical gold or invest in gold mining companies. Common examples include SPDR Gold Shares (GLD) and iShares Gold Trust (IAU).
Evaluate and select an ETF: Compare different gold ETFs based on their expense ratio, liquidity, and performance history. Choose one that aligns with your investment strategy and goals.
Purchase shares: Once you’ve selected a gold ETF, purchase shares through your brokerage account. Decide how much you want to invest and place a buy order either at the market rate or through a limit order to specify the maximum price you’re willing to pay.
Monitor your investment: Keep track of the performance of your gold ETF and consider your broader investment strategy. Adjust your holdings as needed to align with your financial goals and market conditions.

Benefits of Investing in Gold ETFs

If you are thinking about investing in Gold ETFs, here are five key benefits to consider:

Liquidity and accessibility: Gold ETFs trade on major stock exchanges, so investors can buy and sell shares throughout the trading day at market prices. It is easy for investors to enter and exit gold ETF positions, while physical gold can be more cumbersome to trade.
Diversification: Gold often behaves differently from stocks and bonds. Diversifying your asset allocation with gold can help reduce overall portfolio risk. During times of economic uncertainty or inflation, gold tends to perform well.
Cost efficiency: Investing in gold ETFs can be more cost-effective than purchasing physical gold. There are no storage or insurance costs associated with gold ETFs, and their management fees are typically low compared to other investment vehicles.
Transparency: Gold ETFs are required to disclose their holdings regularly, providing investors with clear visibility of the assets backing their investment. This transparency allows investors to make informed decisions and ensures that the ETF is accurately tracking the price of gold.
Hedging against inflation: Gold is often seen as a hedge against inflation, as its value tends to rise when fiat currencies lose purchasing power. Investing in gold ETFs allows investors to protect their portfolios from inflation’s impact over time.

Cons of Investing in Gold ETFs

As with other financial investments, gold ETFs also carry potential downsides. Here are four cons to keep in mind:

Lack of physical ownership: When you invest in gold ETFs, you do not own the physical gold itself. Instead, you hold securities that represent a claim on gold, which may not provide the same sense of security for some investors.
Management fees: Gold ETFs come with management fees that reduce your returns. These fees are charged annually and vary depending on the fund. While they may seem small, over the long term they can significantly impact the return on your investment.
Market volatility: Like any investment tied to the stock market, gold ETFs are subject to market volatility. The price of gold can fluctuate due to various factors, including geopolitical events and changes in currency values. This volatility can lead to unpredictable returns, making it a less stable investment compared to physical gold.
Tax implications: The tax treatment of gold ETFs can be complex and may not be as favorable as other investment vehicles. In some jurisdictions, gains from gold ETFs are taxed at a higher rate than other long-term capital gains, which can reduce the net returns for investors.

Bottom Line

An investor researching the pros and cons of gold ETFs.

Investing in a gold ETF can help diversify your portfolio and protect against market volatility. Buying shares is simple with a brokerage account that offers access to stock exchanges. Gold ETFs vary in expense ratios, liquidity and the types of gold they hold. While they don’t offer the experience of owning physical gold, fees and taxes are important factors to consider.

Tips for Investment Planning

A financial advisor can help you create an investment plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
SmartAsset’s asset allocation calculator can help you figure out how to balance your investments among different asset classes based on your risk profile and time horizon.