Investing In Precious Metals – Central Issues By Way Of The Professional Synopsis
Saturday, January 21st, 2012Before investing in precious metals by way of an ETF, it’s a good idea to simply assess some of the downsides so you can intelligently weight your options. One of the issues has already been mentioned, with respect to the ETF products that are linked to bullion. The issues there is that there is the tracking error that occurs when bullion is sold out of the fund to cover the expenses of running the fund. The amount of bullion on hand, then, relative to the money invested no longer reconciles. The take home message is that you can best track the price of bullion by simply owning the bullion. A similar thing occurs with ETFs anchored to mining companies, including your typical gold ETF. In this case, the ETF is usually based on an index of companies. When things go well, there’s no problem. However, if there’s a time when you would prefer to sell a given company, that’s hard to do when you “own“ that company merely as part of the index. Investing In Precious Metals Via Mutual Funds There are yet more options for investing in precious metals if you’ve ruled out bullion, ETFs based on bullion, and even ETFs related to groups of stocks that are tied to a given index. If you want the movement that the miners can provide, but want more flexibility than being tied to an index, then you can look to a quality mutual fund. Two of my favorite mutual funds are under the directly of Frank Holmes, who has won awards for his mining stock fund management. There’s yet more diversity within the category of mutual funds as well. Investing in precious metals via mutual funds is an option for those preferring the larger producers as well as people wanting exposure to junior resource stocks. Specifically, USERX (U.S. Global Investors Gold and Precious Metals Fund) is suitable for people who want to concentrate on the more established companies that are already in production. For those wanting the chance to share in the gains of small companies with a shot at really multiplying, there is UNWPX (U.S. Global Investors World Precious Minerals Fund). There is really a good deal of overlap between the two funds. The key distinction is that roughly one-fifth of the assets under management in UNWPX are directed toward the smaller companies. The differences between the mutual funds and ETFs are notable. Each of them allow you to participate in the volatility and leverage of mining companies. However, the mutual fund is going to be actively managed, so there will only be participation in companies the manager deems appropriate at any given time. The expense ratio can be higher, but you simply get what you pay for in this regard. A well managed fund can easily justify the higher expense by attaining stellar results. You should note that standard mutual fund facts apply. As a result, you won’t be trading this investment like a stock. Instead, you simply buy and sell after the net asset value is determined at the end of the trading day. You won’t be engaging in options trading, but most people looking to a mutual fund generally are not trading options. As long as you have the required $5,000 minimum to start, this can be a great alternative.