Source: Morningstar.com

As you can see, the range is wide. But that raises the question – how do you choose which is the best fund for you? We recommend that you:

1. Decide how conservative or how speculative you want to be
2. Don’t chase returns – look at long-term performance.
3. Analyze the loads and expense ratios which can vary widely, from .4% to more than 2%.
4. Look at the portfolio turnover, which can range from 2% to more than 500%.
5. Find out if the fund is well-diversified or concentrated in too few companies.
6. Check out the funds’ management for tenure, experience and track records.

Funds come and go, and since 1989 sixteen gold funds have been dissolved – the last one as recently as November 2001, according to Eagle Wing Research.

As with any investment, make sure you investigate prior to plunking your money down. Fortunately, the Internet makes that easy for you. My favorite is: www.Morningstar.com. And don’t forget to call for a fund prospectus before investing. That way, you can decide if the fund’s management policies and investment objectives agree with your goals.

Gold Exchange Traded Funds (ETFs) differ from gold mutual funds in that many of them hold physical gold bullion rather than the gold stocks held in mutual funds. The World Gold Council safeguards this gold in their vaults.

ETFs have become very desirable for investors without the deep pocketbooks required to invest in bullion, as they can make purchases in small increments. Additionally, investors don’t have to worry about insurance, storage or unscrupulous dealers. And since the gold ETFs trade on major stock exchanges, liquidity isn’t a problem. Lastly, like mutual funds, ETFs provide portfolio diversification, professional management benefits, as well as certain tax efficiencies.

However, there are some disadvantages. Investors do have to pay commissions, or transaction costs when buying or selling gold ETFs, as well as management expenses along the way – although the costs and fees are generally lower than investing in similar mutual funds. Also, ETFs are securities and the prices will therefore rise and fall with investor demand.

Gold ETFs were first issued by the Australian Stock Exchange in 2003. Today, they are readily available in the U.S., Australia, the U.K. South Africa, Singapore, France, Italy, Germany, Japan, and India.

Here is a sampling of the gold ETFs you can purchase in the U.S.:
 

Source: Morningstar.com

Because so many ETFs are new to the market, they haven’t been in business long enough to warrant a rating – or for 3-year return figures. Therefore, you will need to be cautious. To find the best ETF for you, make sure you do compare expenses – not just performance figures. Morningstar is also my favorite Internet site for researching gold ETFs.

As you can see, for most investors, buying a gold fund or ETF, rather than bullion or gold coins, probably makes a lot of sense. And both funds and ETFs have their advantages. If you do decide to invest in gold funds or ETFs, we recommend that you do so with just a small portion of your overall portfolio. That way, you can take advantage of any further appreciation in the metal, but you won’t be risking the majority of your funds on a very volatile sector.

We certainly can’t make any promises for the continued meteoric rise for gold. But most investors may find that adding a little glitter to your holdings may be just what you need to ‘shine’ up your returns.

This article was previously published in Financially Fit on March 18, 2008.

This concludes this week's issue of Financially Fit.  We encourage you to visit our website to review past issues of Financially Fit:

http://www.brokeradviser.com/newsletter.cfm


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