Mutual Funds that Invest in Gold

The volatility of the economy has pushed some investors to think twice when making new portfolios. Despite the seemingly improving economy, some people are still hesitant to test the investment market anew.

This is why some investors look for ways to diversify their investment portfolios. And quite a number of investors have found a good solution in mutual funds that invest in gold. Mutual funds are collective investment scheme wherein an individual broker or an investment firm pools money from different investors and use it to buy stocks, short term money market instruments, securities or bonds. And because the fund is pooled, the gains and losses from the investment are spread among investors.

Mutual funds that invest in gold, or gold mutual funds, can be defined as funds that is used to buy equity securities of companies that are primarily engaged in the distribution, mining, or processing of precious metals.

Most of these portfolios concentrate on mining stocks, while some actually own small amounts of gold bullion. Others have also been inclined to invest in other precious metals like platinum and silver. This type of investment is considered by some as a volatile asset class, so a great deal of research, monitoring and analysis of the market is strongly advised before putting your investment in gold mutual funds.

Over-reliance on trade strategies to have a return-on-investment can sometimes be very expensive, not to mention tax-inefficient. Some suggest the “buy and hold” strategy to compensate for its inherent unpredictability. Equities from gold mining companies is said to have greater leverage than direct metal ownership. But most experts say that diversification of portfolio is the primary benefit that investors get from mutual funds that invest in gold.

This limits your losses from your investments. Not only that, gold has a low correlation with the overall equity markets and can act as hedge against financial assets. This would mean that in periods of high inflation, gold is an effective store of wealth. And because the demand for gold is high, thanks to the jewelry industry and other industrial proponents, this could be a really a lucrative investment initiative. Investments have risks.

It is in the hands of investors and fund managers to assess the current situation so that they can decide whether it’s favorable to pursue an investment to a particular stock, equity or bond. And with in depth market research and careful planning, investors can have a strategic advantage.