There are multiple ways of investing in gold for retirement. Investment in exchange-traded funds (ETFs) is growing more popular. Mutual funds have become a very familiar financial instrument. Even novice investors are aware of them. Both of these types of investments offer convenience. Though they differ in key respects.
GOLD EXCHANGE-TRADED FUNDS
Exchange-traded funds (EFTs) have become a popular investment vehicle. Typically ETFs are comprised of a collection or basket of funds which track a certain market index. They are traded like individual stocks and are listed on the major stock exchanges. The financial instruments making up the ETF are known at the time of purchase.
Gold ETFs are of two types: the first type owns physical gold; the second type invests in futures contracts. Because the first type owns physical gold, the prices of the ETF should follow closely the spot price of gold. The spot price is the price for immediate delivery, i.e., within days.
However because of phenomena in the futures market such as contango and backwardation, the second type of ETF does not always track as closely with the spot price of gold. In the futures market, when distant delivery months prices are progessively less it is termed backwardation. Contango is the common situation where distant delivery months prices are progressively higher.
GOLD MUTUAL FUNDS
Gold mutual funds are a basket or pool of stock issued by companies involved in mining, processing or distribution of gold and possibly other precious metals. The companies issuing the securities may come from any region of the globe.
Mutual funds differ from ETFs in several ways. First of all, mutual funds are not traded on the stock exchanges. These funds may be sold by banks, by brokers or directly from the fund itself. By the way, even if a bank sells a specific mutual fund, FDIC insurance does not cover this.
Each share of a mutual fund represents the composition of holdings in that fund. Unlike ETFs, mutual funds orders can only be filled at the end of the day. The actual composition of the fund may not be known except quarterly. In the event you wish to get out of the fund, you have to redeem your shares with the fund.
GOLD MUTUAL FUNDS AND ETFs
Both of these financial instruments make it easier to participate in price movements of gold. And most of the time, but not always, these are liquid markets. Therefore, they are easy to get in and get out when needed.
Gold mutual funds have all the inherent problems of the underlying gold or precious metal mining stocks. The quality of company management, debt ratios, the cost of mining and the political landscape all have to be accounted for. Gold mining stocks may not follow the price movement in gold.
Buying an ETF means you are buying a paper representation of gold. In the case of ETFs backed with gold, the gold stores may not be audited. There's a trust issue there. And with future contract based ETFs, shifts in the marketplace can be disastrous.
GOLD EXCHANGE-TRADED FUNDS
Exchange-traded funds (EFTs) have become a popular investment vehicle. Typically ETFs are comprised of a collection or basket of funds which track a certain market index. They are traded like individual stocks and are listed on the major stock exchanges. The financial instruments making up the ETF are known at the time of purchase.
Gold ETFs are of two types: the first type owns physical gold; the second type invests in futures contracts. Because the first type owns physical gold, the prices of the ETF should follow closely the spot price of gold. The spot price is the price for immediate delivery, i.e., within days.
However because of phenomena in the futures market such as contango and backwardation, the second type of ETF does not always track as closely with the spot price of gold. In the futures market, when distant delivery months prices are progessively less it is termed backwardation. Contango is the common situation where distant delivery months prices are progressively higher.
GOLD MUTUAL FUNDS
Gold mutual funds are a basket or pool of stock issued by companies involved in mining, processing or distribution of gold and possibly other precious metals. The companies issuing the securities may come from any region of the globe.
Mutual funds differ from ETFs in several ways. First of all, mutual funds are not traded on the stock exchanges. These funds may be sold by banks, by brokers or directly from the fund itself. By the way, even if a bank sells a specific mutual fund, FDIC insurance does not cover this.
Each share of a mutual fund represents the composition of holdings in that fund. Unlike ETFs, mutual funds orders can only be filled at the end of the day. The actual composition of the fund may not be known except quarterly. In the event you wish to get out of the fund, you have to redeem your shares with the fund.
GOLD MUTUAL FUNDS AND ETFs
Both of these financial instruments make it easier to participate in price movements of gold. And most of the time, but not always, these are liquid markets. Therefore, they are easy to get in and get out when needed.
Gold mutual funds have all the inherent problems of the underlying gold or precious metal mining stocks. The quality of company management, debt ratios, the cost of mining and the political landscape all have to be accounted for. Gold mining stocks may not follow the price movement in gold.
Buying an ETF means you are buying a paper representation of gold. In the case of ETFs backed with gold, the gold stores may not be audited. There's a trust issue there. And with future contract based ETFs, shifts in the marketplace can be disastrous.
Owning these investments is not the same as owning gold bullion. If you are losing faith in the current economic system, the only way to retain any control is to buy physical gold (gold bullion). For more information on how to buy gold for retirement, see http://www.buygoldforretirement.com
Article Source: http://EzineArticles.com/?expert=C._Paula_Howell
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