Gold is a precious metal that’s used in everything from jewelry and artwork to industrial goods and electronics. It can also be an option for investors looking for an alternative to more traditional investments, like stocks and bonds.
The main reasons investors may consider gold are:
Some people also like that gold is a physical object (unlike stocks and bonds) that shouldn’t wear down over time and may still be worth something even if, say, entire governments and currency systems collapse.
There are several ways you can invest in gold:
Gold investing is less straightforward than owning vanilla stocks and bonds. Physical bars can be expensive to buy and store, and you may need to insure them. Trading futures and options is risky. And buying shares of mining companies doesn’t give you a direct bet on the price of gold.
In short, any option you choose comes with trade-offs.
Gold can be a controversial investment. Here are some of the disadvantages that skeptics typically point to:
The middle-ground opinion on gold is that it can make sense as a small addition to an otherwise well-rounded portfolio. But you probably don’t want to sink your life savings into that gold ETF just yet.
Physical gold, such as bullion and coins, is considered a “collectible” for tax purposes and so comes with a distinct set of tax rules. If you sell physical gold for a profit, the tax rate you pay may depend on how long you owned it:
And you never owe taxes on gold that you haven’t yet sold or otherwise transferred—no matter how much it’s risen in value.
Investing in gold—whether in its physical form or through stocks, funds, or derivatives—comes with potential benefits but also trade-offs. While gold can help diversify your portfolio and provide some protection against market swings, it doesn’t provide the same income potential or long-term returns of more mainstream investments.