Investing in Gold vs Mutual Funds

Buying physical gold bullion isn’t the only way to invest in gold. As we cover here you can invest in gold-focused certificates, such as by investing in gold Exchange Traded Funds (ETFs) including the very popular PDR Gold Shares (GLD), or through buying stocks in gold mining companies or “Miners”.

The other non-gold gold investment is the Gold Mutual Fund – a fund where an investment portfolio is pooled from multiple investors. In gold bullion mutual funds each share in the fund is represented by a fixed weight of gold. Other gold mutual funds invest in a basket of gold assets from physical metals, to miners – with some funds even investing in other funds such as ETFs.

With a mutual fund you’re essentially investing in the performance of a basket of other investments, so as opposed to directly investing in gold and owning that gold, you’re piggybacking onto other investor’s investments.

Funds are an easy and cost-effective route into getting some benefit from assets without owning them – but because you’re not actually investing in the asset directly there’s an added layer of risk too. Fund management.

By taking the easy option – such as buying into what is effectively a pre-balanced portfolio, you’re relying on someone else to manage the fund for you and that someone else, or group of managers doesn’t always get it right.

Even if the underlying assets are performing well, a badly managed fund can go down in flames leaving investors with nothing.

In late 2019 the Bank of England announced it was cracking down on mutual funds in the wake of the collapse of some big-named funds, leaving unfortunate investors down multiple millions in lost capital. BoE governor Mark Carney went so far as to say that many of these funds are “built on a lie.”

We remember where lies got the financial market in 2008, so when a top-level banker publicly goes on record warning us about the lies and exaggerations surrounding funds, it’s probably time to take notice.

Investment in the mutual funds market has more than doubled in size since the last financial crisis and some are leveraged so highly there’s concern that even a small market correction could bring the whole segment crashing down.

Although there’s always a place for easy to own paper assets that can deliver great returns in a buoyant market, now is perhaps not a good time to be heavily into these often risky investments.

After all why own a derivative of gold, when you could just as easily own the real thing?

Investing in Gold vs Real Estate

The choice should never be gold vs real estate – picking one OR the other. High quality real estate and gold bullion should always have a place in a well diversified investment portfolio.

Gold and real estate have a lot in common. They are both “real” investments – that is money invested in tangible and/or productive assets as opposed to investment in securities or other financial instruments. They are also both long-term assets, used to build long-term generational wealth.

Land, like gold is something they’re not making more of – and productive land like farmland or land zoned for development can offer excellent mid and long-term rewards. In days of diminished resources land can contain rights to minerals, oils and increasingly popular as an investment – fresh water.

And the property we build on the land, the residential and commercial real estate can see both strong capital growth alongside income from rents. Ever-tightening building codes and planning restrictions again mean we’re getting into a time where there is less new building for a growing population. In the long term property – land and real estate goes up in value.

Of course we can see property crashes and whole cities have been near-abandoned in the aftermath of the last financial crisis. But these crises rarely affect the best land, or the best real estate which hold their value in times of crisis and grow during the good times.

Like gold’s climb to the stars post 2008 as retail investors with little market knowledge piled into the gold market, the same happened to real estate in the run up to the crash. Watching other people making big money from doing very little is difficult to ignore and FOMO (fear of missing out) is always capable of hiding obvious truths from greedy eyes.

When there’s greed and ignorance in a market, bankers are always quick to take advantage, offering the wrong products to the wrong people to buy the wrong assets.

And it was bad debts buying bad property – all under a web of lies being built by bad banks that caused the property crash – leaving overly leveraged investors holding badly built McMansions in a negative equity hell.

The good real estate, that is prime property and prime land – weathered the storm. Much like Gold.

Investing in Gold vs Bitcoin

We’ve all heard the stories of early bitcoin adopters buying pizza for bitcoin, which would now be worth a zillion dollars. And who could have missed the media attention and buying frenzy in 2017 which drove the price of a single bitcoin from $1000 to almost $20,000?

But is bitcoin a solid investment now prices have settled back to the $8,000 – $10,000 range?

Because Bitcoin is being hailed as The New Gold, we cover bitcoin’s use as an investment in detail in our bitcoin section – after all if we can now add bitcoin in our IRAs and even buy physical bitcoins with their digital value hidden inside a secret key, they would seem to be a direct rival for gold coins. No gold investor can forget the day Bitcoin’s price passed gold: something that seemed so unlikely even a few months before it happened.

And cryptocurrency technology is sure to change the old fashioned way we do our banking, bringing enhanced speed and lower costs to a system still shipping slips of paper and hand-written checks across the world.

When this happens – and it will happen – will it be bitcoin that rules the system, or some new as-yet unminted coin that tops the market?

Whatever the future, there’s certain to be lots of volatility in crypto markets and lots of money to be made.