A precious metals ETF can be another financial asset worthy of adding to any retirement investment portfolio. Today’s article provides the most important things an investor needs to know before investing in this financial security.
In this article:
- What Is a Precious Metals ETF?
- What Are the Pros and Cons of This Investment?
- Where Can You Buy Precious Metals ETFs?
- List of Precious Metals ETFs – 2019 Top Performers
- Important Things to Consider Before Investing
Precious Metals ETF: The Ultimate Investing Guide
What Is a Precious Metals ETF?
An Exchange-Traded Fund (ETF) is a security that functions as a portfolio containing other securities, such as shares of stocks.
Most of the time, ETF securities follow a benchmark price or index. However, many ETF securities also invest in shares and other financial assets across different industries.
ETF securities are similar to mutual funds but with a key difference. Unlike mutual funds, people invest in ETFs through exchanges throughout the day, just like with shares of stocks.
An investor who’s interested in investing in ETFs must be aware that they’re not the same as exchange-traded notes.
While they also trade in exchanges like stocks, exchange-traded notes are debt instruments, not mutual fund-like securities.
Precious metal ETFs invest in the precious metals market, which includes gold, silver, and palladium, among others.
What Are the Pros and Cons of This Investment?
Convenience is the single biggest benefit of investing in this type of ETF. An investor can:
- Easily buy or sell them online or by calling a stock exchange licensed broker;
- Invest in precious metals even with little investment capital; and
- Avoid the hassles of looking for a secure place to store precious metals market investments because it’s an investment in shares of a precious metals portfolio, not in actual physical metals.
Instant diversification is another benefit of investing in a precious metals ETF. People can indirectly invest in precious metals of various kinds and forms, such as gold and silver bullion and coins.
While they’re generally concentrated on the precious metals market, these types of ETFs provide intra-industry diversification and reduce market risk by:
- Investing in various forms of the same precious metal, such as gold bullion and coins
- Spreading investment funds across different assets or precious metals
The last benefit of investing in precious metals ETFs is liquidity.
As with any financial investment, investing in a precious metals ETF has its risks.
While precious metals are considered to be “safe haven” investments when economies crash, a precious metals ETF isn’t a direct investment in such assets. As such, this type of investment may not necessarily offer the same value stability during economic turmoil.
Another potential disadvantage of investing in this kind of ETF is it may not directly follow the price movements of the metals that comprise its portfolio. It’s because ETFs are companies that have operating costs, such as employee salaries.
If an ETF company has high operating costs, those can significantly reduce capital gains on its underlying metals. During price downturns, such costs may exacerbate capital losses, too.
Where Can You Buy Precious Metals ETFs?
People can start investing in a precious metals ETF in major stock exchanges like the New York Stock Exchange (NYSE) Arca through their accredited stock brokerage companies. All they need to do is open an account with any exchange-accredited broker to start trading online or over-the-phone.
List of Precious Metals ETFs – 2019 Top Performers
Aberdeen Standard Investments
Of the top-performing precious metals ETFs as of November 2019, Aberdeen Standard Investment accounts for four of them. These include:
- Aberdeen Standard Physical Precious Metals Basket Shares ETF (GLTR): Over half of this ETF’s portfolio is in physical gold bullions, while a quarter of it is in physical silver bullions. The rest is in palladium bullions. As of writing, its year-to-date daily return is 15.69%.
- Aberdeen Standard Physical Platinum Shares ETF (PPLT): This ETF’s portfolio concentrates on physical platinum bullions. As of writing, its year-to-date daily return is 12.87%.
- Aberdeen Standard Physical Palladium Shares ETF (PALL): This ETF’s portfolio concentrates on physical palladium bullions. As of writing, its year-to-date daily return is 39%.
UBS ETRACS CMCI Gold Total Return ETN (UBG)
This ETF’s portfolio contains various types of gold assets. As of writing, its year-to-date daily return is 14.01%.
- GraniteShares Platinum Trust ETF (PLTM): This ETF’s portfolio concentrates on physical platinum bullions only. As of writing, its year-to-date daily return is 12.98%.
- GraniteShares Gold Trust ETF (BAR): This ETF’s portfolio concentrates on physical gold bullions only. As of writing, its year-to-date daily return is 14.09%.
SPDR Gold MiniShares (GLDM)
This ETF’s portfolio invests in shares of SPDR Gold Trust, which is a gold ETF. As of writing, its year-to-date daily return is 14.28%.
Perth Mint Physical Gold ETF (AAAU)
This ETF’s investment portfolio consists entirely of physical gold ounces. Its year-to-date return is 14.05%.
Shares Gold Trust ETF (IAU)
This ETF’s investment portfolio contains various types of gold assets. As of writing, its year-to-date daily return is 14.01%.
Important Things to Consider Before Investing
This type of ETF is a market-driven investment, which means its value and returns are volatile. When considering it for retirement investing, here are some of the things you should keep in mind:
- Limit investment amounts in this kind of security only to those you’re comfortable losing or won’t be needing within the medium term.
- Invest in different precious metals ETFs to reduce your precious metals-specific investment risk.
- You might be better off taking a long-term approach (i.e. buy-and-hold) to investing in precious metals ETFs. This is why there’s a need to limit investment amounts.
- For newbie investors, it’s better to get sound investment advice from stockbrokers and other veteran long-term investors. This helps maximize the chances of choosing profitable precious metals ETF shares.
A precious metals ETF is an investment that can help you earn good investment returns to grow your nest egg and provide additional diversification for your retirement portfolio. Before making your first investment, it might also be ideal to consult an investment professional first so you can get an idea of what to expect.
Which particular precious metals ETF do you want to invest in right now? Let us know why in the comments section below.