Just as you should diversify the various asset classes that you hold, it is also a good idea to diversify how you invest in those asset classes. This is especially true with precious metals. There are many ways to invest in precious metals and many of them are good, but they are beneficial for different reasons.
ETF’s
Exchange Traded Funds or ETF’s are a simple and easy way to own gold and silver. ETF’s trade like stocks so even if you just have a brokerage account you can buy a gold or silver ETF such as GLD or SLV. This is probably the cheapest and easiest way to own gold and silver as all you are paying is the commission to your broker to buy and sell the ETF and a modest monthly charge to the organizer of the ETF. This being said, there are some downsides to this method. We do believe that the further you are from your money the less safe that money is and this is the case with an ETF. If you are buying gold and silver due to a distrust in the direct of the U.S. government and their money supply then you do not have much control over the funds in this ETF and in an emergency you do not have the ability to get your hands on the physical metal. As a side note these ETF’s do not promise you that you can ever take possession of the actual gold or silver, they are merely trying to construct a financial instrument that reflects the price value of gold or silver. Also, remember the government has outlawed the ownership of gold and silver before so it is not much of a stretch to imagine that they would do it again if they felt it was in their best interest. Therefore, we believe that ETF’s are best if you are looking to bet on the short term direction of the price of gold and silver, or if you want to make sure you have exposure to gold and/or silver while you are seeking a more permanent solution.
Gold Mining Stocks and Mutual Funds
When it was illegal to own gold coins and bullion in the U.S., investing in mining stocks allowed investors to gain exposure to gold and silver. At the time there were few other options; however, that is no longer the case. Your best way to gain exposure to the metals is much more direct. If you do invest in a mining stock or mutual fund rather than the metal, you are buying a portion of a business and taking on all of the risks and potential rewards associated with that business. If the company is well run and has a bit of luck with the mines that they own or purchase you can see significant value, but the opposite can be true as well. Most mining companies have a relatively small market capitalization so think of these companies as small cap or micro cap stocks.
Owning mining companies through mutual funds is very similar to owning other stocks through mutual funds. It increases your diversification and if you are not an expert in the field it increases your chances of finding successful companies. This being said, the downside to diversification is that it dilutes your success when you find a company that skyrockets. Either buying the individual mining stocks or buying a mutual fund is fine as a speculative investment, and can be relatively inexpensive, but it is not a replacement for owning gold or silver.
Owning the Physical Metal
There is no substitute for having the physical metal in your possession. In the event of a serious global financial crisis you are definitely going to want physical metal where you can easily get to it. Having the fewest barriers between you and your money is generally our preference. This being said, possessing the physical metal comes with the substantial risk of theft. In addition, you will also needs to store it and protect it from other dangers. Insuring metals on your own can be very expensive. The default answer of the safe deposit box does alleviate some of these issues. However if there is some great crisis there is a very good chance the banks will be closed. Therefore, we advocate keeping what you think you will need at home in the event of a crisis, but it is probably not cost effective or safe to keep all of your gold and silver at home.
This dilemma creates the need to trust another entity to protect your gold and silver. You should take great caution in looking for the proper place to store your wealth. For our personal storage we trust GoldMoney.com. If you would like more details on GoldMoney see our article on why we trust GoldMoney and have chosen to partner with them.
Coins vs. Bullion
This may not be as classic of a debate as it may seem. The answer of which to own is probably simple: own both. Think of bullion as large denominations and coins as smaller denominations. In the event that you need to use gold or silver as a method of payment you will want to be able to make some larger payments and even more smaller payments. For all large purchases of the metals, and any holdings with GoldMoney, you will realistically need to use bullion. However, the practicality of the coins in the case of a catastrophic financial melt down cannot be denied.