ETF’s (Exchange Traded Funds) are a fairly new product to Wall Street. An ETF fund is an exchange-traded fund — a device similar to a mutual fund that is used to take a group of investor’s money and place it in a group of securities to diversify. With a gold ETF, you are investing your money into a group of stocks that own and hold gold. You are essentially investing in the commodity itself. Instead of placing your money into a mutual fund where you may not have access to it at all times, you are deciding to place it in an ETF where you can trade it at any time the market is open.
Many investors like to use ETF’s as a way to diversify their holdings. In the modern market it is far too risky to place all of your money in one stock or bond, so wise investors like to spread it around. The gold ETF will help you to do just that. The gold ETF trades like a regular stock, with a price per share, and no minimum required. However a gold ETF is not like a regular stock at all. It does not have earnings reports or financial statements. There is no CEO or board of directors, there is only the company (usually a brokerage firm) that manages the fund.
The idea of an ETF fund is that it mirrors whatever it is suppose to mirror. For example if you were to invest in a DOW 30 ETF, then the idea would be that the ETF would go up on days that the DOW was up and down on days that it was down. However, because of the fact that ETF’s are a relatively new product, they are not traded as heavily as regular stocks. Since ETF’s have lower volume, they have higher volatility and thus they don’t always do what they are suppose to do.
While you have many choices of ETF’s to pick from, a gold ETF is not a bad selection — neither is a natural gas ETF, or a silver ETF. It is certainly a good way to change up your portfolio and add some diversification and invest in gold. The risk associated with a gold ETF are also high (anyone who keeps up with ETF news can tell you this), but as the saying goes “With risk comes reward”. This holds true with gold ETF’s, as they can be some of the more profitable investments if played right, just like other gold investments.