Disclaimer: Some or all of the companies reported here may provide compensation to us, at no cost to our readers. This is how we keep our reporting free for readers. Compensation and detailed analysis are what determines how companies appear below.
In many ways, it’s a wise choice that, under the right circumstances, can safeguard a portfolio from the ravages of a tumultuous market. The key is choosing the right financial products for your exact situation.
To that end, below, we’re looking at the difference between investing in gold stocks versus physical gold — also known as bullion.
What’s the difference? Which is the better option? We’ll answer all these questions and more.
Before we get started, investing your savings is a serious task. When it comes to adding precious metals to your portfolio, how do you know which companies to trust?
That is why we have researched every company in the industry and selected the very few with the highest customer service standards.
This way you can easily compare the best companies in the business, and choose one that fits your needs and investment goals.
Or
Get a FREE Gold Information Kit from our #1 recommendation, by clicking the button below:
Get the FREE Gold Kit smart investors are using to protect their retirement savings.
What Are Gold Stocks?
Gold stocks — also known as “gold paper” — are publicly traded shares in companies that mine, produce, market, or distribute precious metals. Like traditional stocks, the value is tied to the business’s fortunes.
For example, if you buy gold stock in a company that goes belly up, your stocks won’t be worth the paper they’re printed on. Conversely, if the company hits the proverbial jackpot, your fortunes will simultaneously soar.
Typically, there are three categories of gold stocks: exchange-traded funds, gold mining stocks, and gold certificates.
Gold ETFs are a good option if you want to leverage the stability of precious metals but don’t want to bother storing bullion. Essentially, people who go this route invest in gold-backed assets.
It’s an excellent way to enjoy the stability of gold prices, which tend to stay stable even when the market is down, without the fees associated with owning bullion.
Gold mining stocks are simply shares in mining companies. Adding them to a portfolio is a smart way to enjoy the safety of the timeless commodity. However, if the company you buy shares in doesn’t do well, you’ll be out of luck.
Gold certificates are simply promissory notes indicating that you “own” a specific amount of the precious metal that isn’t in your possession. Technically, they aren’t stocks and can therefore be riskier because the capacity to get scammed is also greater. So if you go this route, triple-check the provider. Since the dollar is no longer backed by gold, certificates aren’t as common these days.
You can either buy gold stocks on your own or enlist the services of a stock broker or investment advisor to guide you through the process or execute trades on your behalf.
When going the stock route, it’s vital to remember that playing the market is a risk. Your portfolio’s value swings up and down with economic conditions. If a world, industry, or company event takes a downturn, so will your investment outlook.
What types of things can impact the market and, ultimately, the value of a given stock?
What Are Physical Gold Investments?
Physical gold investments involve purchasing units of the precious metal as bullion blocks, coins, and sometimes jewelry.
However, if you want your investment to be officially recognized by the IRS, your product must meet certain criteria, and you must comply with certain tax obligations on the holding.
Additionally, people who invest in precious metals must also pay to keep them stored to be considered a recognized holding. Most people invest in one or more of three acceptable types of bullion: coins, cast bars, and minted bars.
Authorized governments and dealers press coins that often commemorate a given person or event. Ones minted by governments can sometimes be used as currency. Cast bars are created in a mold. They tend to be rougher than other options and frequently include imperfections.
Minted bars are made by pouring liquid gold into a strip of metal. When dried, they’re cut into bars and tend to be shinier than casts. Moreover, they’re usually kept in their original packaging, preserving their appearance longer than other options.
Our Rating
Pros & Cons of Gold Stocks
There are advantages and disadvantages to investing in both gold stocks and bullion. Let’s explore the pros and cons.
Thanks to finance technology advancements, selling market shares has never been easier. As such, gold stocks can be quickly traded in a pinch if you need an influx of money. Plus, you likely won’t have difficulty offloading it since it’s a traditional asset.
Gold stocks can be held in an investment portfolio like any other traditional stock. Physical gold, however, must be stored — which almost always comes with a set of fees. Moreover, if you want it to be legally recognized, physical gold must be held in a precious metals IRA managed by a custodian.
Physical gold is a commodity that needs its insurance — just like a house or jewelry. Typically, however, stocks don’t need to be insured.
Sure, precious metals are seen as one of the safer stock investments, but at the end of the day, playing the stock market is risky since values are dependent on the success of a given company and not the value of gold. Strikes, management issues, political upheaval, and environmental factors can all drag down your investment.
One of the reasons people invest in precious metals is to safeguard against a full-fledged economic crisis. The thought process is that if the market completely crashes, they’ll have gold to use as currency. Going with gold stocks, however, eliminates this possibility.
When the stock market performs poorly, gold and other precious metals typically rise in value. However, if you don’t actually own any, your fortunes are inextricably tied to the company instead of the commodity.
Our Rating
Pros & Cons of Investing in Physical Gold
There are advantages and disadvantages to investing in both gold stocks and bullion. Let’s explore the pros and cons.
Many people dismiss the possibility, but no rule says the stock market can’t crash and burn. In the event paper currency becomes worthless, gold can be used as currency.
If you want to eliminate the proverbial middleman, owning gold is the better option. Instead of worrying about a given company’s management or employee situation, you simply possess the gold and only have to worry about its inherent value.
In recessions and depressions, the value of gold rises. Moreover, since it’s a finite commodity, its value continues to increase over time.
It may sound ridiculous, but if you want your bullion to be recognized as a valid investment, storing it in your home is illegal. Instead, it must be placed into a certified IRA monitored by an accredited custodian. Resultantly, you’ll incur yearly fees to insure, store, and monitor your investment.
If you want to invest in physical gold, you can’t just go to any old dealer. Instead, the product must be approved by the IRS. So before you dive in, it’s imperative to ensure you’re getting metals that will qualify for an IRA precious metal investment.
While investing in physical gold is a safe way to hedge against market volatility, the possibility of it yielding a windfall is also marginal.
Should You Invest in Gold Stocks or Physical Gold Investments?
Whether you should invest in gold stocks or physical gold largely depends on your situation and the state of the market. So what should you consider when deciding how to invest in precious metals? Let’s break it down.
What is the current state of your investment portfolio?
Do you have significant assets, or are you just starting out? Moreover, what’s your ultimate investing goal? Do you want to make money quickly, or are you in it for the long term? If you don’t have a lot of assets, are just starting, and want to amass a significant amount of money in a shorter period, stocks may be the best option if market conditions are good.
What is the current state of the market?
Is it a bull or a bear? If it’s the former, riskier bets can pay huge dividends. If the latter, investing in precious metals may be the wiser move.
What’s the inflation situation at the time of investment?
When inflation rates are high, precious metals tend to hold their value a tad better. In periods of low inflation, stocks, and other “paper” financial products may be the ideal option.
- People in search of high-yield, short-term investments may want to stick with gold stocks instead of bullion because the possibility for a windfall is greater.
- If you’re looking to diversify your portfolio, investing in bullion can be a solid decision because precious metals, especially gold, are a smart hedge against volatile market conditions.
- The economic law of supply and demand plays a role when choosing whether to invest in gold stock or physical gold. Since there’s a finite amount of precious metals on the planet, their values are likely to rise or stay relatively stable over the long term, so they’re considered “safe-haven assets.”
Final Thoughts
Building a diversified portfolio is wise, and investing in precious metals in some capacity is an excellent way to get the job done. However, the choice is yours as to how. Gold stocks may be the best choice if you can handle a bit more risk. Physical gold may be the best option if you’re interested in stability. Doing both is also an option.
Whatever you choose, just make sure to research associated factors to determine the exact right move for your age, goals, and holdings.
Remember to read our list of the Top Gold Companies.
>> Click HERE to read our Best Precious Metals IRA Companies list <<
Or
Get a FREE Silver & Gold Information Kit from our #1 recommendation, by clicking the button below:
At Digital Financing Task Force, we provide research and analysis for people that want to take control of their financial future and protect the savings that they have.
