The Most Investable Asset Comparison: Physical Gold Vs. ETFs
Gold has been perceived and used as a currency and investment for hundreds of years. It is very popular with today's investors as a hedge against current currency depreciation, inflation, and deflation. Gold also provides "safety" during economic turmoil.
The market for gold is an extremely liquid one, and there are different ways to get exposure to this valuable metal. Two of the most popular options are exchange-traded funds (ETFs) and physical gold, including gold coins and gold bars.
Chosing Between Physical Gold and Gold ETFs
For investors who are ardent to invest in Gold, it's crucial to understand the differences between these two options. Investors should also understand how these differences can affect their financial goals.
Investing in Physical Gold
Investing in real gold means acquiring physical metal. In other words, investors buy gold that they can hold in their hands. Coins, ingots, bars, and rounds are all examples of physical gold bullion.
The value of gold bullion is determined by its purity and mass instead of its monetary value. Even though a gold coin may have a monetary (or legal tender) value, its market value is determined by the pure gold content of the coin. Normally the market value of a coin far exceeds its legal tender value.
Pros and Cons of Investing in Physical Gold
Below are some benefits and disadvantages of physical gold investment:
Pros
• Gold is a solid hedging option against inflation
• Gold is perceived as a precious and valuable asset throughout the world, and its value is the same worldwide
• Investing in physical gold provides more control to the investors over the investment process
Cons
• Comparatively, investing in Gold is riskier than some other options
• Investors may pay more for storage and transportation fees
• In some countries there are considerable taxes on bullion purchases or capital gains.
Investing in Gold ETFs
Any investor can buy or sell ETFs like stocks on a stock exchange. Gold ETFs let investors invest into a basket of gold companies without the expenses and hassles of storage, markups, and security threats associated with it. However, owning a gold ETF also has costs. The cost ratio of a mutual fund causes an investor to lose a proportion of the net investment every year. An expense or cost ratio is a recurrent yearly fee that funds levy to pay their administrative and management expenditures. For instance, the SPDR Gold ETF has a 0.40 percent expense ratio.
Pros and Cons of Investing in ETFs
Pros
• Investors don’t need to manage any aspect of physical gold. Yet, they can invest in it from your computer and own gold without ever taking posession of it.
• ETFs are easy to be cashed out. Therefore, investors will be able to cash out their shares at any time.
• ETFs are easily buyable and sellable, and investors can do everything online.
Cons
• Investors don’t possess any physical gold
• ETFs are managed by other people. So, traders have little control
• Gold ETFs are associated with some management fees
Conclusion
Both physical gold and ETFs may be profitable investments. It's up to the investors to decide which is more appropriate for their condition. Traders may even combine the two if they like to get the benefits of both physical and ETF versions of gold. All they have to keep in mind is all investments come with some level of risk. If they are not sure what to do, they should research a bit more.