• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer

Optimized Portfolio

Investing and Personal Finance

blank space placeholder
  • Beginners Start Here
  • Investing 101
    • Beginners Start Here – 9 Steps to Start Building Wealth
    • What Is the Stock Market? How It Works & How to Invest in It
    • How To Invest in an Index Fund – The Best Index Funds
    • Portfolio Asset Allocation by Age
    • How To Invest Your HSA (Health Savings Account)
    • How To Invest Your Emergency Fund
    • Why and How To Buy Bonds Online: A Guide for Beginners
    • 8 Reasons Why I’m Not a Dividend Income Investor
    • Factor Investing and Factor ETFs – The Ultimate Guide
  • Lazy Portfolios
    • All Weather Portfolio
    • Bogleheads 3 Fund Portfolio
    • Warren Buffett Portfolio
    • HEDGEFUNDIE’s Excellent Adventure
    • Golden Butterfly Portfolio
    • Permanent Portfolio
    • David Swensen Portfolio
    • 60/40 Portfolio
    • more…
  • Brokerage Reviews
    • The 5 Best Stock Brokers
    • The 4 Best Investing Apps
    • M1 Finance Review
    • M1 Finance vs. Fidelity
    • M1 Finance vs. Vanguard
    • Stash vs. Robinhood
    • Investing Brokers with the Lowest Margin Rates
    • M1 Borrow Review (How M1’s Margin Loan Works)
  • ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • The 11 Best Dividend ETFs
    • The 7 Best Small Cap Value ETFs
    • The 5 Best REIT ETFs
    • The 5 Best Tech ETFs
    • The 6 Best ETFs for Taxable Accounts
    • The Best Vanguard Bond Funds – 11 Popular ETFs
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • The Best Vanguard Growth Funds – 5 Popular ETFs
    • 6 Best ESG ETFs for Responsible Investing
    • The 7 Best International ETFs
  • Leverage
    • What Is a Leveraged ETF and How Do They Work?
    • How To Beat the Market Using Leverage and Index Investing
    • The 9 Best Leveraged ETFs
    • Hedgefundie’s Excellent Adventure
    • Leveraged All Weather Portfolio
    • Leveraged Permanent Portfolio
    • Leveraged Golden Butterfly Portfolio
  • Dividends
    • The Best M1 Finance Dividend Pie
    • The 11 Best Dividend ETFs
    • The Best Vanguard Dividend Funds – 4 Popular ETFs
    • VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETF’s
    • 8 Reasons Why I’m Not a Dividend Income Investor
    • Bonds
      • How To Buy Bonds Online: The Ultimate Guide
      • Treasury Bonds vs. Corporate Bonds
      • The Best Vanguard Bond Funds – 11 Popular ETFs
      • The Best Bond Funds Out There – 13 ETFs
      • The 11 Best Treasury Bond ETFs
      • The 5 Best High Yield Bond Funds for Income
      • The 3 Best Corporate Bond ETFs
      • The 3 Best Municipal Bond ETFs
      • The 3 Best TIPS ETFs
  • Credit
    • How To Raise Your Credit Score Fast
    • How To Consolidate Credit Card Debt
    • How To Refinance Your Car Loan
    • How To Shop for a Mortgage
    • 9 Tips To Lower Your Car Insurance Premiums

Why and How To Invest in Gold for Beginners

Last Updated: November 21, 2020 No Comments – 3 min. read

Gold can be used as a store of value and a significant alternative asset in a diversified investment portfolio. Here we’ll explore how to invest in gold quickly and easily online.

Disclosure:  Some of the links on this page are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality, ad-free content on this site and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful, not because of the commission I get if you decide to purchase through my links. Read more here.

Contents

  • Why Invest in Gold?
  • Gold Performance vs. Stocks Historically
  • How To Invest in Gold
  • Conclusion

Why Invest in Gold?

Gold has long been a common currency of the world. The shiny metal is now traded on exchanges via futures and ETFs. Gold is considered a commodity. Commodities as a whole are usually used as a diversifier to lower portfolio volatility and risk.

Gold acts as a steady store and transfer of wealth because, while it is transformed into different shapes and applications, it is not consumed like oil, coffee, water, and other commodities. Ancient civilizations used gold as currency, and the U.S. monetary system was based on the gold standard, with the amount of credit directly tied to the physical supply of gold, thereby providing a cap for lending, until 1971.

Gold is perhaps most famously used as a hedge against inflation and for providing protection for a declining currency. Whether or not it has delivered on that effectively in the past is debatable, but gold inarguably does at least provide a short-term diversification benefit – with its uncorrelation to both stocks and bonds – that can reduce portfolio volatility and boost risk-adjusted returns, making it particularly attractive for investors with a short time horizon and/or low risk tolerance.

A more reliable fact is that gold is typically a popular flight-to-safety asset during periods of market turmoil, irrespective of monetary policy and interest rate environment. Worsening economic conditions have historically been correlated with a rising price of gold. This is interesting when you consider that gold is not a value-producing asset. The metal is also held in many parts of the world as a “safe haven” for times of political unrest and instability; it is referred to as the “crisis commodity.” Gold is a significant component of many popular lazy portfolios like the All Weather Portfolio, the Golden Butterfly Portfolio, and the Permanent Portfolio.

Now that you know why you might want to invest in gold, let’s look at gold’s historical performance.

Gold Performance vs. Stocks Historically

Below we can look at the historical performance of gold vs. the U.S. stock market for the period 1972 through 2019. The backtest below has 3 portfolios: 100% stocks, 100% gold, and 90/10 stocks/gold.

gold vs stocks performance
Source: PortfolioVisualizer.com

Notice how gold and stocks have little to no correlation. We can see that gold has been much more volatile than the stock market and that stocks have outperformed gold historically, but of course investors likely aren’t going to be holding a portfolio of 100% gold. The yellow line above (Portfolio 3) shows a portfolio of 90% stocks and 10% gold. Notice how the inclusion of gold reduced volatility and drawdowns compared to 100% stocks, resulting in higher general and risk-adjusted returns historically.

Now that you’ve seen how gold has behaved in relation to stocks in the past, let’s look at how to invest in gold.

How To Invest in Gold

There are several ways to invest in gold.

The most direct way is obviously to buy physical gold bullion. Think coins or bars that go in a bank vault. Unfortunately, this physicality, weight, and size make this form of gold quite illiquid.

The easiest, quickest, and most popular way to invest in gold is with gold ETFs. ETFs are exchange-traded funds. They are funds that trade like stocks on an exchange and track an index, in this case the price of gold. Each share of an ETF is the equivalent of 1/10 of an ounce of gold bullion.

Gold mining stocks (companies that mine the metal) are another option, but they tend to be much more volatile and unpredictable than ETFs that track the price of gold. Gold mining stocks are also more correlated with the stock market than the price of gold bullion per se.

Three of the most popular low-cost gold ETFs that track the spot price of gold bullion include:

  • GLD – SPRD Gold Trust
  • IAU – iShares Gold Trust
  • BAR – GraniteShares Gold Trust

Conclusion

Gold is both a store of value and an alternative investment. It has proven to be a significant diversifier with a reliable uncorrelation to both stocks and bonds. Gold has been a solid hedge against market downturns historically. Gold is particularly attractive for investors with a short time horizon and/or a low risk tolerance. There are several popular, highly liquid, low-cost ETFs to track the spot price of gold bullion. All the above gold ETFs are available on M1 Finance. The online broker has zero transaction fees and zero account fees, and offers fractional shares, dynamic rebalancing, and a modern, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.


Disclosures:  None.

Disclaimer:  While I love diving into investing-related data and playing around with backtests, I am in no way a certified expert. I have no formal financial education. I am not a financial advisor, portfolio manager, or accountant. This is not financial advice, investing advice, or tax advice. The information on this website is for informational and recreational purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. Do your own due diligence. Past performance does not guarantee future returns. Read my lengthier disclaimer here.

m1 finance get started

Related Posts

  • 8 Reasons Why I’m Not a Dividend Income Investor
  • How To Invest Your HSA (Health Savings Account)
  • Lazy Portfolios and Their ETF Pies for M1 Finance
  • Treasury Bonds vs. Corporate Bonds – The Showdown
  • The 6 Best Index Funds for Beginners for Long-Term Growth

About John Williamson

Analytical and entrepreneurial-minded data nerd, usability enthusiast, Boglehead, and Oxford comma advocate. I lead the Paid Search marketing efforts at Gild Group. I'm not a big fan of social media, but you can find me on LinkedIn and Reddit.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Most Popular

Ray Dalio All Weather Portfolio Review, ETF’s, & Leverage

Riding the HEDGEFUNDIE Adventure (UPRO/TMF) on M1 Finance

Golden Butterfly Portfolio Review and M1 Finance ETF Pie

The David Swensen Portfolio Review and ETF Pie for M1 Finance

Harry Browne Permanent Portfolio Review, ETFs, & Leverage

Treasury Bonds vs. Corporate Bonds – The Showdown

VIG vs. VYM – Comparing Vanguard’s 2 Popular Dividend ETFs

The Warren Buffett Portfolio Review and ETF Pie for M1 Finance

The 60/40 Portfolio Review and ETF Pie for M1 Finance

Bogleheads 3 Fund Portfolio Review and Vanguard ETFs To Use

Paul Merriman Ultimate Buy and Hold Portfolio Review, M1 Pie

Brokers With the Lowest Margin Rates (2021 Comparison)

M1 Finance vs. Vanguard Brokerage Comparison [2021 Review]

M1 Finance vs. Fidelity Brokerage Comparison [2021 Review]

The Best M1 Finance Dividend Pie for FIRE & Income Investors

Stash vs. Robinhood Brokerage Comparison (2021 Review)

Portfolio Asset Allocation by Age – Beginners To Retirees

The 5 Best Stock Brokers Online for Investing (2021 Review)

The 4 Best Investing Apps for Beginners (2021 Review)

The 8 Best Small Cap ETFs (4 From Vanguard) for 2021

The 5 Best REIT ETFs To Invest in Real Estate for 2021

The 5 Best Tech ETFs To Get in on the Technology Boom (2021)

The 6 Best Clean Energy ETFs To Go Green in Your Portfolio

The 9 Best Small Cap Value ETFs (3 From Vanguard) for 2021

Why, How, & Where To Invest Your Emergency Fund To Beat Inflation

401k Max Contribution Calculator for Front Loading Each Year

6 Best ESG ETFs for Responsible Investing (2 From Vanguard)

ESG Investing – Going Socially Responsible in Your Portfolio

Factor Investing and Factor ETFs – The Ultimate Guide

m1 sidebar

Footer

  • Email
  • Facebook
  • Instagram
  • LinkedIn
  • Pinterest
  • RSS
  • Twitter
  • YouTube
  • Reddit

Amazon Affiliate Disclosure

OptimizedPortfolio.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.

Email Newsletter

Sign up to receive email updates when a new post is published.

Don't worry, I hate spam too. No ads.

Copyright © 2021 OptimizedPortfolio.com


About - My Toolbox - Privacy - Terms - Contact

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Ok, Got ItReject Read More
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Non-necessary

Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.