How Does a Gold Mutual Fund Work?
- Gold has been revered since ancient times. Today it is one of the most important and the most expensive precious metals available. While gold is extremely popular for many reasons, it is also in short supply. If you want to invest in gold and take advantage of its lucrative possibilities, buying into a gold mutual fund can be a smart investment move.
- The price of gold has skyrocketed since the turn of the century as the uses for gold increase. It has many applications, from jewelry to dental work to industrial uses. Investing in gold is particularly popular during times of economic difficulty. As the price of stocks and bonds go down and the U.S. dollar weakens, the price of gold goes up. Also unlike other products when demand decreases when the price increase, with gold the demand increases as the price also increases. Another factor is that the world is creating more millionaires and billionaires at a faster rate, and this increase the number of gold buyers. All of these factors make gold an excellent investment.
- If you want to invest in gold you have a few choices: gold bullion, gold coins or gold jewelry. Investing in these forms of gold takes expertise, not to mention the need for safe storage and insurance, which adds to the cost. An easier and less expensive way to invest is with a gold mutual fund. With a gold mutual fund your money is pooled with other investors or shareholders. A professionally trained investment advisor manages the fund. The fund manager makes all the investment decisions choosing what form of gold to buy, what gold mining companies to invest in and then choosing the optimum time to sell investments. The main goal of the fund manger is to increase the value of the mutual fund so that its shareholders make money. These fund managers are in charge of the portfolio of the fund or the total list of investments in the fund. One of the main reasons experts recommend mutual funds is because of its diversification which is the varied investments in the portfolio. The more stocks or bonds in a fund the less volatile it will be. There will be fewer highs and extreme lows in the overall value of the portfolio. With less volatility, there is less risk that you will lose the money you invested. This is true for all types of mutual funds.
- To find the top-performing gold mutual funds, read magazines like "Kiplinger" or "Smart Money." Another option is Morningstar, a ratings service (see Resources below). Once you narrow down your choices, read the prospectus of each of the mutual funds. If you have questions, call or email the fund. Since you will be investing your money, you need to understand all that is involved. Also check to see what the minimum initial deposit is. If you have little money to invest in a fund, a very high initial deposit narrows down your choices of funds. With any investment there is risk, but a mutual fund is one investment that can reduce this risk.
