Gold is another popular flight-to-safety play, mostly based on worst-case-scenario fears. The broad idea is that if global economic structures come crashing down and paper money eventually means nothing, humans still will assign some worth to the shiny yellow element that once acted as a currency … even if it doesn’t have as much practical use as other metals and goods.
How true that is has yet to be determined. Plus, several studies have shown that gold, which doesn’t generate earnings or distribute cash to shareholders, can’t hold a candle to stocks and bonds as a long-term investment. Investors also need to know that gold can be influenced by other factors, such as jewelry demand and the strength of the U.S. dollar, which gold and other commodities are priced in.
Nonetheless, investors have flocked to gold in previous periods of stock-market turbulence – most notably in the wakes of the turn-of-the-century dot-com crash and the 2007-09 crash – and may provide similar protection in another ugly downturn.
ETFs such as the iShares Gold Trust provide exposure to gold without the hassles of owning the physical metal – namely, taking delivery, storing it, insuring it and unloading it on someone else when you’re done with it. Specifically, the IAU issues shares that represent gold held in physical vaults, and each share trades at roughly 1/100th the price of an ounce of gold.
The IAU is actually the second most popular physical gold ETF, at just $9 billion in assets versus $36 billion for the SPDR Gold Trust (GLD). However, GLD’s popularity comes from institutional investors. Each unit is worth roughly 1/10th an ounce of gold, meaning high-volume traders can save on per-share fees for the same amount of gold.
But IAU is the better deal for regular investors thanks to its far cheaper expense ratio (0.25% versus 0.4% for GLD).
SEE ALSO: 5 Great Funds and Stocks for Your Starter Portfolio
Source: Kiplinger
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