Hi Guys,
How does owning Ā£GLN work in comparison to owning physical gold?
Are you betting against the price of Gold instead of owning it physically?
Also, Iāve been reading Gold is a good asset to own during financial crashes.
You want to own productive businesses, I would rather own a business than a lump of metal, hoping the next guy will pay more for it. A good business will outperform gold, that is why the right stocks are a better investment than gold in the long run.
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What you are talking about is an ETF which tracks the price of gold, this may be done using futures contracts. You donāt own the gold, but legally the contract means you get the price of the futures contract when selling or buying.
Itās a market tracker so tracks the price of the commodity. Similar to how an ETF tracks the share price of companies
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13 posts were split to a new topic: Should I diversify my portfolio?
So as you are investing in the proce of Gold, rather than actually buying Gold, if the price of goes increases, your investment is worth more?
Is this the same with GBP as well?
Yes, it tracks gold using futures contracts. I assume the ETF is in Ā£, so no fx risk.
Unfortunately youāve had some innacurate replies so far. Some of the real answers can be found in the KID for this ETC. Itās not an ETF.
Consider BlackRockās iShares Gold Trust (IAU). A trust is a type of ETF that buys physical gold in exchange for shares issued. The buyer of the ETF, therefore, owns a fractional piece of the gold held in trust.
In the case of BlackRockās iShares Physical Gold ETC (SGLN), investors donāt own piece of the gold they are investing in. Rather, the underwriters of the fund financially back the note (the ETC) with the holdings. The structures are similar, but not the same.
So investing in the thing available on Freetrade is sort of like buying a loan note, and the loan is backed by physical gold.
As for if investing in gold would help during a financial crisisā¦ it might, or it might not.
Take a look at the second graph here and play around with the date slider, or click ā10yā as an example. Do you see an obvious (negative) correlation between stock market dips and gold prices?
Maybe gold can still provide some stability to a volatile stocks portfolio. But you pay for this possible safety with reduced returns.
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Gold is the traditional store of value - all FIAT currencies so far have been eventually inflated to zero. As one of my gold bug friends says āan ounce of gold bought you a nice toga in Roman times and will buy you a nice suit nowā. So in terms of human effort, it has kept its value.
What about 1 share of Apple bought in 1980.
Or even 1 share of all the companies of the S&P 500. Under no circumstances should anyone own gold, unless they are trying to flee with their net worth to another nation.
Iād still take a business over gold 99% of the time, even with high levels of inflation. Gold is only good at protecting wealth from inflation, it is not good at generating earnings. Gold has no ability to earn money, which a business can.
The only time I wouldnāt take a business is a severe economic depression, where gold will perform better.
I donāt think it is appropriate to compare Gold purely to FTSE 100ās plain performance without accounting for circa 4% dividend yield being reinvested. That way, Gold will be the worse choice overall, but a fine mean of diversification of your asset classes.
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Doesnāt include dividend reinvestment, if it did, gold would be destroyed.
Look for S&P 500 Total Return Index and FTSE 100 Total Return Index
I wouldnāt even call it 4%, dividends grow with time. You are reinvesting a growing dividend, which is compounding as well. FTSE 100 total return will beat gold, FTSE 250 total return will destroy gold.
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I think this is the best use of it
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Stocks generally win over the long term, but the ups and downs can be scary, shaking out investors at the wrong time.
Compare the range of timeframes to meet the target growth (scroll down to the section on portfolio growth - it shows all start dates since 1970) of the US total stock market, 8-19 years Total Stock Market ā Portfolio Charts to that of a balanced portfiolio (including gold) such as golden butterfly, 14-16 years Golden Butterfly ā Portfolio Charts
The diverse portfolio may be slower than the average case of the pure stock portfolio (6.2% average return vs 7.6% average return), but it is way more predictable, check the std deviation, 8% vs 17% - if you have a target to achieve it will tell you how much to invest with more confidence, without the downside of hitting the worst case. It also has tiny drawdown compared to a stock based portfolio, 10% vs 50% worst case, which helps to not scare the cr@p out of you when you check it.
My approach is to make the majority of my investments into the more predictable performance and try to beat it with a smaller proportion of my fund that I invest in more risky assets.
Thatās why investors shouldnāt look at quotations from Mr Market every day. It causes more pain than good, for example, I bet a ton of people from Freetrade panic sold today. This is not even real volatility, the vix is still below 30. When stocks start capitulating, you see who can handle the heat. When the dow is down 5-8% in a single day, you see who the weak hands are.
Retail investors shouldnāt even be in the market, if they canāt handle the volatility. God help the guy who invested Ā£200 a few days ago in 3i.
Itās better than cash, Iāll give you that. Playing with a gold bar is fun as well.