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Financial Advisor vs. Financial Planner: What’s the Difference?

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A financial advisor is more likely to focus on your investments, while a financial planner is a type of financial advisor who takes a broader view of your financial situation. Fees can be another important difference between financial advisors and financial planners.

In the financial services industry, it can be a little confusing figuring out the difference between a financial advisor vs. financial planner. There’s a fair amount of overlap between the two roles, and some people use the terms interchangeably — but there is a difference. This article compares the two to better help you find the right professional to manage your money.

The difference between a financial advisor and a financial planner

Financial Advisor vs. Financial Planner
Financial AdvisorFinancial Planner
Scope of dutiesFocuses on investmentsTakes a holistic view of your financial life
CertificationsFINRA licenses; certifications such as CFA and ChFCCFP certification
FeesTypically charges based on a percentage of assets under managementTypically charges for their time, such as a flat or hourly fee

Let’s look at the different types of advisors and planners in a bit more detail, along with what services they each offer.

What is a financial advisor?

Someone who describes themselves as a financial advisor tends to focus more on investments. When someone chooses between working as a financial advisor vs. financial planner, their title shows potential clients what work they specialize in.

What a financial advisor does: A financial advisor’s typical duties include designing your portfolio, managing your investments and calculating how much you’d need to invest per year to reach your financial goals. As part of this service, an investment advisor could answer some basic questions for other parts of your financial plan, like taxes and insurance, but it’s not their primary service. Instead, they are more focused on working with clients looking for investment and portfolio management, while leaving additional parts of the financial plan to other professionals.

Financial advisor credentials: To process investments for their clients, a financial advisor will need to have at least their FINRA licenses. There are different types of advisors depending on what license they have. An advisor with a Series 6 license could only sell mutual funds for a commission, while one with a Series 7 license could also sell individual securities like stocks and bonds. If they charge for giving investment advice, they need a Series 65 license.

Advisors could also train for additional investment credentials, such as a chartered financial analyst (CFA) or chartered financial consultant (ChFC) designation. To earn these designations, a financial advisor must go through additional training and pass an exam, above and beyond the minimum license requirements.

What is a financial planner?

A financial planner is a type of financial advisor — in fact, all financial planners are advisors, but not all advisors are necessarily financial planners. So how are the services provided different for a financial planner vs. financial advisor? A financial planner typically looks at your entire situation, not just your investments.

What a financial planner does: On top of investment management, a planner could also help with budgeting, debt management, insurance, retirement planning, taxes and estate planning. After reviewing your entire situation, this professional would create a financial plan with steps for you to follow. For example, they could design your monthly budget, tell you what insurance to buy and set up a portfolio recommendation as part of your plan. You could then hire the planner to keep you on-track with the goals or go off and follow the plan by yourself.

Financial planner credentials: You may have also heard of a CFP, which stands for certified financial planner. But what does a certified financial planner do differently? They operate mostly the same as a regular financial planner and give the same sort of advice — the difference is they have more training. Before someone can earn this certification, they must have at least a bachelor’s degree and three years of full-time financial planning experience. They must also complete an intensive course on different types of financial planning (if they do not already hold another designation, such as Certified Public Accountant (CPA), CFA or ChFC) and pass an exam to qualify.

In terms of the CFP vs. financial advisor comparison, another difference is that a CFP must adhere to the fiduciary standard, meaning they must put a client’s interests ahead of their own when recommending investments. Financial advisors and non-CFP financial planners do not need to meet this standard, and can recommend products that are suitable, but not necessarily the very best for a client: For example, they can recommend a slightly worse product that pays them a higher commission.

Fees for a financial planner vs. a financial advisor

Fees are another key difference between financial planning and investment management. A financial planner is more likely to charge for their time than a financial advisor. They could charge you by the hour for financial planning advice, or charge you a flat fee to put together a plan.

On the other hand, a financial advisor is more likely to charge an asset-based fee, which is based on a percentage of the amount of assets you have under their management. This fee is then deducted from your portfolio each year. If an advisor charges a 1% fee and you invested $100,000, they will deduct $1,000 a year from your portfolio. Additionally, an advisor might make commissions when you purchase investments.

However, these rules are not set in stone, as you could see planners charging asset-based fees for ongoing services and advisors charging for their time. Some firms also charge a single fee for a program that includes both investment management and financial planning.

Before working with a financial advisor or financial planner, it’s important to ask questions and make sure you clearly understand their fee model as well as what services are included under that fee.

When should you get a financial planner vs. financial advisor?

Whether you should work with a financial planner or a financial advisor depends on your goals. The major function of financial planning is to create a list of your major long-term goals, while figuring out the steps you can follow to meet them. In other words, financial planning provides a more holistic view of your entire situation.

So how can a financial advisor help differently? A financial advisor is likely going to be more focused on your investments and will only touch on other parts of your financial plan. If you’re primarily looking for investment advice, an advisor could be a better choice. Since this is their specialty, they could do a better job in this one area, versus a generalist financial planner.

When it comes to titles, though, keep in mind that these aren’t always two distinct professionals. Financial planners are a type of financial advisor, whereas some financial advisors can also offer financial planning. You will also see some advisory firms offer programs that combine investment/portfolio management and financial planning. Still, if you’re looking for a specific service, the job titles can give you an idea what someone specializes in.

How to choose a financial planner or financial advisor

Whether you want to work with a financial planner or a financial advisor, there are a few tips you can follow to find the right match.

Know where to start your search. The organizations in charge of issuing credentials like the CFP or CFA have member databases where you can search for professionals near you. You could also search for local planners and advisors through Google, or by using a review website like MagnifyMoney or asking friends for recommendations.

Do your research. If an advisor looks promising, you can do a quick check on their background. With FINRA’s BrokerCheck system, you can see whether an organization has run into any trouble with past clients by pulling up their Form ADV; this paperwork will also provide more details on the services offered and the firm’s fee schedule. For individual advisors and planners, you can use the SEC’s Action Lookup tool to find more information.

Don’t hesitate to ask questions. When you schedule a meeting with an advisor, ask plenty of questions. How long have they been in business? What are their specialties? What type of clients do they typically work with? Check out this list for more questions you could ask.

Make sure you understand the costs involved. Advisor and planner fee schedules can be complicated. Ask them for a clear breakdown, so you understand exactly how they would be compensated. You should also ask them about any potential conflicts of interest, like whether they earn commissions from recommending certain products over others.

Request client referrals. If you’re impressed with your first meeting, see whether they can give you testimonials from other clients. If an advisor or planner is doing a good job, they should have other clients willing to say so.

Compare your options. Finding a good financial advisor or financial planner is a bit like dating. Ideally, you connect with someone for a long-term financial relationship. Don’t rush the process and sign on with the first person you meet. Take the time for a few meetings so you can make an informed comparison and find the best fit for the management of your money and your investments.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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The 7 Best Robo-advisors of 2020

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If you’re new to the world of investing in stocks and bonds, knowing where to begin can be an intimidating prospect. Robo-advisors could be the best choice to start your investing journey. They make putting money in the market simple and intuitive utilizing smartphone apps and sophisticated computer algorithms.

Robo-advisors invest your money in diversified portfolios of stocks and bonds that are customized to your needs. Since computers do the work, they are able to charge much lower fees than traditional wealth advisors.

They begin the process with a questionnaire to assess your financial goals and your risk tolerance. Based on your answers, robo-advisors purchase low-cost exchange-traded funds (ETFs) for you and adjust the portfolio — or rebalance, as they say on Wall Street — on a regular basis, with no further intervention required from you.

To match your risk tolerance, robo-advisors offer more aggressive portfolios containing a greater percentage of stock ETFs, or more conservative ones containing a greater percentage of bond ETFs. The robo-advisor will also consider your age in developing your portfolio.

How we chose the best robo-advisors

We regularly review the latest robo-advisor offerings — we’ve evaluated 19 different ones in this round — and have selected our top choices. All of the robo-advisors on this list may well be worth considering, with those at the top scoring the best in our methodology.

To determine our list of the best robo-advisors, we focused on management fees and account minimums, and also considered ease of use and customer support.

The top 7 robo-advisors of 2020

Robo-advisorAnnual Management FeeAverage Expense Ratio (moderate risk portfolio)Account Minimum to Start
Wealthfront0.25%0.09%$500
Charles Schwab Intelligent Portfolios0.00%0.14%$5,000
Betterment0.25% (up to $100,000), 0.40% (over $100,000)0.11%$0
SoFi Automated Investing0.00%0.08%$1
SigFig0.00% (up to $10,000), 0.25% (over $10,000)0.15%$2,000
WiseBanyan0.00%0.12%$1
Acorns$12/yr0.03%-0.15%$5

 

Management Fees

0%

Account Minimum

$100 one-time deposit or $20 monthly deposit

Promotion
N/A
Management Fees

0.25%

Account Minimum

$0

Promotion

Three months free for new customers who are referred by an existing Betterment account holder

Management Fees

0.30%

Account Minimum

$100

Promotion

N/A

Wealthfront — Low fees, high APR for cash account

Wealthfront — Low fees high cash management APR
Wealthfront’s stand-out features are its low annual cost and free financial planning tools. The 0.25% management fee and 0.09% average ETF expense ratio adds up to one of the lowest annual costs on this list. In addition, Wealthfront includes a cash management account with an attractive 0.35% APY.

Wealthfront continues to steal share in wealth management as customers fed up with high fees leave traditional brokerages and wealth advisors. Human interaction is intentionally minimal at Wealthfront: This could be a benefit to those who want to be left alone, or a drawback for those who would prefer personal attention or who have complicated tax situations.

Wealthfront’s key attributes:

  • Fees: Management fee of 0.25%, plus 0.09% avg ETF expense ratio
  • Minimum starting deposit: $500
  • Investing strategy: Wealthfront invests your money in one of 20 different automated portfolios. Each portfolio is a different mix of 11 low-cost ETFs, which are rated with risk scores from 0.5 (least risk) to 10.0 (most risk).
  • Average annual return over the past five years: 5.40% per year, based on Wealthfront’s mid-level 5.0 risk score.
  • Other notable features: Tax-loss harvesting (see below for a full explanation of tax-loss harvesting) comes standard, also includes an FDIC-insured cash management account yielding 0.35% APY.

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Charles Schwab Intelligent Portfolios — Brand-name brokerage

Charles Schwab Intelligent Portfolios — Brand-name brokerage
Intelligent Portfolios can be a smart choice, but do not be misled by the 0% management fees — investing with this robo-advisor still comes at a cost. Intelligent Portfolios requires users to hold 6% to 30% of deposited funds in cash at a 0.70% APY, which will eat into overall returns in years where the market returns above 0.7%. This is on top of an average 0.14% expense ratio for a moderate portfolio. The $5,000 minimum deposit to open an account may also be too high a bar for investors just starting out.

That said, Intelligent Portfolios has an exceptionally detailed description of their ETF selection methodology, and a major brokerage like Schwab can be a good launchpad for folks who anticipate getting deeper into investing. Intelligent Portfolios users get access to Charles Schwab’s 300 U.S. branch locations where you can talk to advisors and handle administrative tasks in person.

Key attributes of Intelligent Portfolios:

  • Fees: Zero management fee, but customers must hold 6% to 30% of their portfolio in cash at 0.7% APR, plus 0.14% avg ETF expense ratio.
  • Minimum starting deposit: $5,000
  • Investing strategy: Schwab invests your money in a custom portfolio with two main components: ETFs representing up to 20 different asset classes, including stocks and bonds; and cash, in the form of a FDIC-insured cash sweep program earning 0.7% APY. Cash must be between 6% and 30% of the portfolio.
  • Average annual return from 3/31/2015 to 12/31/2018: 3.1% per year for medium-risk portfolio
  • Other notable features: Tax loss harvesting available for accounts over $50K, includes access to in-person assistance at over 300 U.S. branch locations.

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Betterment — Low fees for balances under $100K

Betterment — Low fees for smaller balances under $100K
Betterment offers a full suite of robo-advisor features at low cost with no minimum deposit. The annual management fee for accounts under $100,000 is 0.25%, plus an average 0.11% expense ratio. Unfortunately, accounts over $100,000 will see the annual management fee jump to 0.40%. One advantage Betterment gives to accounts above the $100,000 threshold is that they can actively manage some assets. If active management is your goal, though, you can avoid Betterment’s 0.40% fee by opening a free brokerage account — so if you are managing more than $100,000, you may want to consider a different robo-advisor.

Betterment’s key attributes:

  • Fees: If total balance is less than $100,000, the annual management fee is 0.25% of assets; for balances over $100,000, management fee rises to 0.40% of assets. The average ETF expense ratio is 0.11% (for a 70% stock and 30% bond portfolio).
  • Minimum starting deposit: $0
  • Investing strategy: Betterment invests your money in an automated portfolio comprised of stock and bond ETFs in 12 different asset classes.
  • Average annual return over five years: 6.2% per year on a 50% equity portfolio (July 2013 to July 2018).
  • Other notable features: Tax-loss harvesting comes standard; active management features for clients with $100,000+ balance; several premium portfolios available.

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SoFi Automated Investing — Low costs, great perks

SoFi Automated Investing — Low costs, great perks
SoFi Automated Investing’s 0.00% management fee and ultra-low 0.08% average expense ratio makes it one of the most competitively-priced robo-advisors in the market. Valuable perks come with opening a SoFi account, including free access to SoFi financial advisors, free career counseling and discounts on loans.

Automated Investing’s main downside is that their portfolios are less customizable than its peers’, with only five different risk levels to choose from, as opposed to at least 10 available from others. SoFi does not offer tax loss harvesting yet, though this may change in the near future.

SoFi Automated Investing’s key attributes:

  • Fees: Zero management fee, plus 0.08% avg expense ratio.
  • Minimum starting deposit: $1
  • Investing strategy: All SoFi Automated Investing portfolios are actively managed. This means that real humans at SoFi decide the makeup of the five model portfolios, which they believe will add value beyond what passive investing offers. SoFi invests your money in one of five portfolios of low-cost ETFs, covering 16 different asset classes. Each of the five portfolios has two versions: one is for taxable accounts and the other for tax-deferred or tax-free accounts, like IRAs and Roth IRAs. SoFi only rebalances portfolios monthly, versus some peers which check for this opportunity daily.
  • Average annual return over five years: 6.78% per year on the moderate risk portfolio (60% stocks / 40% bonds).
  • Other notable features: Commission-free stock trades in separate Active Investing accounts. SoFi’s combined checking/savings product, SoFi Money, offers 2.00% APY on deposits. Customers must open this account separately.

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SigFig — Free access to advisors

SigFig — Free access to advisors
Free access to financial advisors by phone and 0.00% management fees on the first $10,000 deposited are SigFig’s biggest strong points. On deposits over $10,000, management fees rise to 0.25%. Expense ratios are on the high side compared to the competition, at an average of 0.15%.

One of SigFig’s peculiarities is that they do not hold your assets. If you open a new account, SigFig will open an account at TD Ameritrade for you and then manage it. Current TD Ameritrade, Fidelity and Charles Schwab customers can also use SigFig’s robo-advisor services.

The $2,000 minimum deposit may put SigFig out of reach for some, but SigFig is worth a look for investors looking to keep robo-advisor costs low.

SigFig’s key attributes:

  • Fees: Zero annual management fee for the first $10,000; management fee rises to 0.25% of assets on balances over $10,000. Average ETF expense ratio of 0.15%, depending on allocation.
  • Minimum starting deposit: $2,000
  • Investing strategy: SigFig invests your money in an automated portfolio based on how you indicate you want to invest. Each portfolio is made of ETFs from Vanguard, iShares and Schwab, comprising stocks and bonds in nine different asset classes. The specific ETFs SigFig invests in will vary based on whether your account is held at TD Ameritrade, Fidelity, or Schwab.
  • Average annual return over five years: 5.45% per year for moderate portfolio (as of 4/24/2019)
    Other notable features: SigFig has a free portfolio tracker that allows investors to track their entire portfolio’s performance across multiple brokers.

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WiseBanyan — No-frills choice for beginners

WiseBanyan — No-frills choice for beginners
A 0.00% management fee for core robo-advisor functionality makes WiseBanyan a good choice for beginning investors who can get by with a no-frills offering. Make sure to notice that they still charge a 0.12% average ETF expense ratio, so it is not completely free.

WiseBanyan charges premiums for features that come standard with other robo-advisors, including tax loss harvesting (0.24% of assets up to $20/month max), expanded investment options ($3/month) and auto-deposit ($2/month). If you care about these other features, do the math based on your own portfolio size to compare WiseBanyan to its peers.

WiseBanyan’s key attributes:

  • Fees: Zero management fee, plus average ETF expense ratio of 0.12%. Premium features carry additional fees and higher expense ratios.
  • Minimum starting deposit: $1
  • How WiseBanyan invests your money: For basic Core Portfolio users, portfolios comprise ETFs across nine asset classes, with an average expense ratio of 0.03% to 0.69%. If you upgrade to the Portfolio Plus Package, you gain access to 31 total asset classes with exposure to ETFs tracking oil and gas, precious metals and other industries, with an average expense ratio of 0.03% to 0.75%.
  • Average annual return over five years: Not provided
  • Other notable features: Premium offerings, including tax loss harvesting (0.24% /month up to $20/month max), Fast Money auto-deposit ($2/month) and Portfolio Plus ($3/month).

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Acorns — Unique savings functionality

Acorns — Unique savings functionality
By rounding up the spare change from your transactions and placing it into an investment account, Acorns provides a clever way to get started with investing. The main drawback is that, until you have more than $4,800 deposited in an Acorns Core account, the $1/month fee will actually be proportionally higher than the 0.25% management fees that most competitors charge.

Acorns does not offer tax loss harvesting, joint accounts, or access to financial advisors currently. Still, if you’re looking for an easy way to start investing, give Acorns a shot.

Key attributes of Acorns:

  • Fees: $1/month for Acorns Core, plus ETF expense ratios ranging from 0.03% to 0.15%
  • Minimum starting deposit: $5
  • How Acorns invests your money: Acorns invests your money in one of five automated portfolios— notably, this is a more limited number of portfolios than some other competitors. Each portfolio comprises ETFs across seven asset classes.
  • Average annual return over past five years: Not provided
  • Other notable features: Offers two add-on accounts for expanded functionality with Acorns Later retirement product ($2/month) and Acorns Spend checking account ($3/month).

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What is a robo-advisor?

A robo-advisor is a service that uses computer algorithms to invest customers’ money in portfolios customized to their needs. Since robo-advisors create these portfolios using automated algorithms, they can charge a fraction of what human advisors do and still offer advanced benefits like auto-rebalancing and tax-loss harvesting to boost overall returns. Most robo-advisors start with a questionnaire to assess your financial goals, risk tolerance and assets. Based on the answers, the robo-advisor allocates your investments accordingly.

How do I choose the right robo-advisor?

When considering which robo-advisor to choose, you should focus on management fees, minimum balances, ease of use and customer support. The lower the fees, the more money stays in your account. The top robo-advisors typically charge a flat management fee of 0.00% to 0.50% of your deposited balance. In addition, you pay an expense ratio to cover the fees charged by the companies offering the ETFs that comprise your investment portfolio. Note that some robo-advisors claim to offer zero management fees, but still charge an expense ratio.

Make sure you are comfortable leaving your deposits with a robo-advisor for the medium to long term — think five to eight years. There are a number of robo-advisors with $0 account minimums and most are under $5,000 today.

How do I open a robo-advisor account?

Most robo-advisors can have you up and running with an account in a few minutes. Typically you create a username, fill out a questionnaire to assess your financial goals and risk tolerance and connect your profile to a bank account. There may be some additional steps required for verification depending on the robo-advisor.

What other features should I consider?

Robo-advisors offer a host of additional features, including tax loss harvesting, cash management options, checking accounts and rewards programs. Cash management can provide a meaningful compliment for users who keep some of their portfolio in cash. Some robo-advisors offer an APY of more than 2.00% on cash management accounts. Tax loss harvesting can make a difference for users looking to lower tax exposure.

What is tax loss harvesting?

Tax loss harvesting is a tax strategy that some robo-advisors offer to help clients reduce their tax bill. Generally, this involves selling an asset that has lost value for a loss, using that loss to offset capital gains taxes or income taxes, then purchasing a similar but not “substantially identical” asset to maintain exposure to the asset class. The details behind each robo-advisor’s strategy can get complicated and should be looked at in detail to make sure you understand what you are getting into.

Capital losses from tax loss harvesting can be used to offset capital gains and can potentially offset up to $3,000 (or $1,500 if married and filing separately) of ordinary income.

What if my robo-advisor goes out of business?

While not a pleasant thought, it is possible that a robo-advisor could go out of business. Most robo-advisors insure clients’ assets through the Securities Investor Protection Corporation (SIPC). This is different from the bank account coverage provided by the FDIC; generally, SIPC coverage includes up to $500,000 in protection per separate account type, with up to $250,000 of cash assets protected.

Keep in mind that the SIPC will take necessary steps to return securities and account holdings to impacted clients, but will not protect against any rise or fall in value of those holdings. This means that if you make a bad investment in a stock, the SIPC ensures you still own that bad stock, but do not replace losses from a poor investment. Some brokers also insure assets beyond the $500,000 in SIPC coverage through “excess of SIPC” insurance.

See the full list of SIPC members at their site, along with a detailed explanation of how SIPC coverage works.

The bottom line

Robo-advisors can be an excellent option for users who are starting their investing journeys, rolling over a 401(k) or who want to minimize the time needed to manage their investments. By creating a customized portfolio based on your financial goals and automatically rebalancing your account, a robo-advisor can help to maximize your return while taking on the right amount of risk.

Because robo-advisors run off of automated algorithms, you should be comfortable with little or no human touch for your investments. The upshot to low human interaction is that fees are generally much lower than with a registered investment advisor, which may be worth the tradeoff as part of an overall financial plan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Investing

How to Invest in Gold

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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You can invest in gold by buying physical gold, gold ETFs, gold futures or investing in gold mining stocks and funds. There are advantages and disadvantages to each approach, and pros and cons to gold in general: It’s a good safety net in a down market, but storage of physical gold can be a hassle and liquidating it may be expensive. Here’s the lowdown on how to invest in gold, and what to consider before you do.

4 ways to invest in gold

There are a variety of ways to invest in gold — and yes, you can buy solid gold bars. (Although that might not be practical.) Here’s how it breaks down.

1. Physical gold

On the most basic level, you can purchase physical gold — gold bars, gold coins, gold jewelry or even gold by the gram or fraction of a gram.

“One gram of gold seems to be where a lot of growth is happening right now,” said Ed Moy, former director of the U.S. Mint and chief market strategist for gold seller Valaurum. “The executive assistant making $75,000 a year can’t buy a one-ounce gold coin, but they can afford $50 worth of gold.”

Pros

  • Gold is a tangible asset: Even if the financial system fails and stock prices fall to zero, you still have actual gold.
  • It diversifies your portfolio: Gold does well in times of uncertainty, providing stability in your portfolio when other investment classes dip.
  • Gold tends to hold its value over time: Even during times of high market volatility or inflation, gold is a steady commodity.

Cons

  • Storage can be a challenge: You must physically store the gold, which may require a safe (and the headache of having it in your house), or paying storage costs to hold it somewhere secure.
  • It’s tougher to cash in: There are costs involved in buying and selling gold, and you must do so through a gold dealer. “You can’t just spend it at Costco and get change from it,” Moy said.
  • Ongoing investment is a challenge: Ongoing investment, such as investing a certain amount each month, is difficult because you must buy gold in whole quantities unless you’re buying gold by the gram.

How to buy physical gold:

Unless you’re a large institution, you’re probably not going to buy gold bullion directly from a mint. Mints sell gold to wholesalers, who then sell it to retailers, and you must locate a reputable gold dealer from the bunch. This may be as simple as searching for gold dealers online and researching them. Look at their rating with the Better Business Bureau, see if consumers have made complaints against them and look into what those complaints are.

“There are a lot of fly-by-night operations,” Moy said. “Look for companies that have been in business for a long time, usually through several up and down cycles for gold, and someone with a good reputation.”

Gold is commonly sold in bars, rounds and coins. Collectors tend to like gold coins, which come with designs on them and are easily sellable to people who buy and sell gold. You can also buy coins in one-ounce denominations or fractions of an ounce. APMEX is a large precious metal dealer, as are companies like JM Bullion and Lear Capital.

Although gold jewelry isn’t necessarily a good investment — you typically pay a high premium over the inherent value of the gold — there are a few companies that have started to produce investment-grade jewelry. JM Bullion, for instance, sells one-ounce gold bullion bracelets.

2. Gold ETFs

If you’re looking to put some money into gold but you don’t want to stockpile gold bars in your basement, gold exchange-traded funds (ETFs) are an option. Instead of owning gold, you’d own shares of a fund that gives you exposure to gold. Some gold ETFs own actual gold, while others deal in gold futures contracts or invest in gold companies, such as those that mine gold. Gold ETFs are generally considered commodity ETFs, because they’re invested in a physical commodity.

“If somebody says, ‘I just want exposure to the price of gold and I want to do it in the most efficient, cheap way possible, and I don’t care if I ever see or touch that gold,’ an ETF is the way to go,” said Michael Wittmeyer, CEO and founder of JM Bullion.

Pros

  • Low fees: The expenses of buying and selling an ETF are lower than the spread of buying and selling physical gold.
  • Liquidity: Shares of large gold ETFs, such as SPDR Gold Shares (GLD), can be easily bought and sold.
  • More accessible for beginner investors: It’s possible to buy shares of a gold ETF with small amounts of capital.

Cons

  • No direct ownership: You own an investment that is backed by gold, but you have no gold coins in your pocket.
  • Risk: If the market tanks, an ETF is an investment and can tank right along with it, depending on the underlying investments. You don’t get the protection of owning actual gold.
  • Volatility: ETFs that invest in gold mining companies, for example, can experience large peaks and valleys, and may not match the performance of gold at all.

How to buy gold ETFs:

You can buy gold funds the same way you’d buy any ETF — through a brokerage account, such as Charles Schwab or E-Trade — and you should research your investment options. Check the expenses associated with the gold ETF, look at its history and volatility and make sure you understand what the fund invests in. (Is it invested in gold futures? Gold mining stocks? Physical gold?) The largest gold ETFs in terms of assets include SPDR Gold Trust (GLD), iShares Gold Trust (IAU) and Aberdeen Standard Physical Swiss Gold Shares ETF (SGOL).

One thing to note is that capital gains on ETFs that invest in precious metals are treated differently, because precious metals are considered a collectible. Although short-term gains on collectibles are still taxed as ordinary income, long-term capital gains are taxed at a maximum 28% rate, which is higher than the maximum rate of 20% on most long-term capital gains.

3. Gold futures

Gold futures investing is a way to trade gold in a leveraged fashion. Gold futures are a financial contract in which you agree to buy gold from a seller at an agreed-upon price at a specific date in the future. You put down a percentage of the full price, allowing you to bet on a large amount of gold with only a fraction of the full investment needed. Most futures contracts are bought or sold before the delivery date, so most investors never take delivery of physical gold.

“It’s a way for investors to make bets on their convictions,” said Peter Palion, a CFP in East Norwich, N.Y. “If you strongly believe that next week, the price of gold is going to double, you can get into a futures contract with a small percentage of the money that its face value is worth. Then, when that price doubles and you sell your position, you end up with a greatly amplified gain.”

The problem with futures is that the above scenario also works for losses — if the price of gold goes in the wrong direction, you stand to lose a lot. “You could cause yourself a pretty bad loss if you don’t know what you’re doing,” Palion said. “For most people, the best advice is, ‘Forget about it.’ You’re playing with things that, especially right now, are not predictable.”

Pros

  • Cash flexibility: You don’t have to pay the full price to purchase a contract on a certain amount of gold.
  • Speculation: You can make a bet on where you think prices are headed in the future and capitalize on that market movement if you’re right.

Cons

  • Risk: The price of gold varies, and you could lose a lot of money if your prediction is wrong.
  • Amplification: While a correct prediction can yield great gains, an incorrect prediction can intensify losses, since you’re working with leverage.

How to buy gold futures:

Futures contracts trade on exchanges, so you’ll need a brokerage account with a broker that offers access to the futures contracts you want to buy and sell. The most familiar exchange for trading metals is the COMEX exchange. You must put up a margin deposit — a good-faith deposit that you’ll honor the contract — to buy or sell a futures contract.

In a traditional gold futures contract, you agree to buy or sell 100 troy ounces of .995 minimum percent fine gold. At a recent gold price of $1,768 per ounce, a gold futures contract would be worth $176,800.

4. Gold mining stocks and funds

Gold mining stocks and funds are just what they sound like — they are stocks of companies that mine for gold, or funds that include stocks of companies that mine for gold. This isn’t so much an investment in gold as an investment in the operations that are looking for gold, and it comes with risks, like any investment.

“Gold mining stocks tend to be riskier investments that don’t correlate perfectly with gold prices,” Wittmeyer said. “Mining companies have operational risk, regulatory risk, environmental risk and corporate governance risk, and frankly are not the best mechanism for investors who only want to gain exposure to gold prices.”

The price of gold could be going up $1,000, for instance, but if a gold mining company has taken on a foolish amount of debt and a chief executive commits an infraction that results in the company getting sued, that stock could quickly take a dive.

Pros

  • Take advantage of rising gold prices: If the price of gold goes up but a company’s costs to mine stay the same, you stand to make money as stock prices rise.

Cons

  • High gold prices aren’t a cure-all: The price of gold might go up, but companies could fail due to other circumstances.
  • Other costs can impact value: There are operational costs to running mines, and if the price of gold drops below a company’s base costs to mine it, the entity can fail since there’s no way to mine gold for less. Hence, a slight drop in gold price can cause a big drop in company stock value.
  • Mines can run dry: There are physical limitations to gold mines, and no one knows how long one company will be able to mine gold from one location.

How to buy gold mining stocks and funds:

Gold mining stocks and funds can be bought and sold through a brokerage account. Large gold mining companies include Newmont Goldcorp, Barrick Gold and AngloGold Ashanti. Some of the biggest gold miners ETFs include VanEck Vectors Gold Miners ETF (GDX), Direxion Daily Gold Miners Bull 2X Shares (NUGT) and iShares MSCI Global Gold Miners ETF (RING).

Is gold a good investment?

Gold is a solid choice if it’s only a small portion of your portfolio (experts recommend 5% to 10%) and you understand what you’re invested in. Gold tends to hold its value, and it helps to balance out more volatile elements of your portfolio. That being said, if you’re purchasing physical gold, you’ll have to deal with storage. Gold also doesn’t produce income (no dividends), and the IRS taxes gold as a collectible. And although gold keeps its value, it doesn’t grow in value over time the way that stocks and bonds might.

Still, gold is a good option for investors who want to go against inflation and market volatility. During the stock market dive from October 2007 to March 2009, when the S&P 500 lost 56.8%, gold rose in value by 25.5%.

“On the days when the market tanks and you see that you’re only down a fifth of what the markets are, you say, ‘Okay, it’s doing what it’s supposed to,’” said George Gagliardi, a CFP in Lexington, Mass.

Gold as an investment: FAQ

Recent gold value — called the “spot price” — was as follows on June 25, 2020:

  • $1,768 per ounce
  • $56.84 per gram
  • $56,842.52 per kilo

Gold is also sold in special products, such as the Gold American Eagle coin, which is traditionally one ounce of gold, although it’s also sold in half-ounce and one-tenth-ounce increments.

  • Gold American Eagle: $1,884.60
  • Gold American Buffalo: $1,885.30
  • Gold Maple Leaf: $1,863.10
  • Gold Philharmonic: $1,864.80
  • One 1.5 oz Gold Leaf: $2,845.00

The price of gold is determined by several factors. Gold futures prices have an impact, as does the gold “spot price,” which is the price of gold that is to be delivered right away. Supply and demand play a role, as do market conditions, which are affected by political and economic events. Lastly, currency depreciation can cause the price of gold to rise as a weakening currency may lead people to invest in gold.

The best way to buy gold depends on your goals and preferences. For people who enjoy collectibles or who wish to keep their wealth in physical form, gold bullion, bars and coins can be a good option. Otherwise, gold ETFs are an easy way to invest in gold without worrying about the liquidity of your gold bars. “ETFs are going to be the best-fitting choice for most investors,” Palion said.

Most banks don’t carry gold or make it available for their customers. “Banks have shied away a bit from precious metals,” Wittmeyer said. “Gold is more of a niche investment.”

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