A Guide on How To Invest in Gold Mutual Funds

Gold isn’t just gorgeous; it can also make a fantastic investment because its value isn’t likely to plummet when the economy is in dire straits. If you’d rather not deal with physical bullion, gold mutual funds could be right up your alley. With a gold mutual fund, you pool your money with cash from other buyers.

Mutual funds buy large amounts of securities at once, which means you pay less than you would as an individual investor. Essentially, you’re getting more bang for your buck.

Learn how to invest in gold mutual funds and find tips for successful gold mutual fund investing in this gold mutual fund investment guide.

Steps To Invest in Gold Mutual Funds

If you’ve ever bought stocks, you already have a pretty good idea of how gold mutual funds work. You can buy funds just as you would stocks, except that each share represents a portion of gold. For instance, one share might equal a tenth of an ounce of gold.

Research and Choose a Gold Mutual Fund

Before rushing off to buy funds, you’ll need to pick a gold mutual fund company. There are many of them out there, each with its own returns and expense ratios.

First Eagle Gold Fund is a good pick, as is Allspring Precious Metals Fund. Both have typically offered high returns, so you can’t go wrong with either.

Open an Investment Account

investor opening investment account for gold mutual funds

Next, you’ll have to open a brokerage account. You have two choices: an online brokerage or a managed brokerage account.

With an online brokerage account, you buy and manage your own funds. If you opt for a managed account, you’ll have either a human advisor or a robo-advisor call the shots for you. These accounts use a program to pick investments based on your age and retirement plans.

Fund Your Account

So, you’ve set up your account, and now it’s time to fund it. You can do this by transferring money to the account from your bank. Some brokerages also allow you to pay by check.

Place Your Investment Order

Deciding which funds to buy and when to place your order are crucial parts of knowing how to invest in gold mutual funds. You may buy a specific number of shares or enter a fixed dollar amount to see how many shares you’ll get.

Mutual fund prices are based on their net asset value (NAV) at the end of each trading day. Calculate this by adding up the fund’s holdings, subtracting any expenses, and dividing by the number of outstanding shares.

Monitor and Rebalance

After purchasing mutual funds, you’ll have to keep a close eye on your account’s performance. If your fund isn’t quite up to snuff, you can always sell it and buy another one. Remember that mutual funds don’t trade throughout the day like stocks do, so the price will be a mystery until the trade is complete.

Some funds charge fees if you sell them soon after buying them. It’s best to think of such funds as a long-term investment. Check on them a couple of times a year to ensure their performance aligns with your retirement goals.

Factors To Consider Before Investing in Gold Mutual Funds

investor doing market research on laptop

Now that you’ve learned how to invest in gold mutual funds, check out these best practices for investing in gold funds.

Investment Goals and Risk Tolerance

It’s never smart to buy mutual funds without understanding your investment goals. Do you want short-term profits, or are you investing for retirement? Investing strategies for gold mutual funds change depending on what your goals are.

If you want quick gains, you might invest in a speculative fund with the potential for large returns. These funds can be risky, though, and there’s a chance you’ll take a big loss.

Established funds tend to be more stable and are a better choice if you’re approaching retirement age. There’s less risk of losing your retirement money with such funds.

Expenses Ratio and Fees

All mutual funds have an expense ratio, which reflects how much the fund pays for marketing, administration, portfolio management, and distribution. Expense ratios are typically a percentage of the fund’s average net assets.

Watch out for fees, too. You’ll have to pay an annual management fee, and you may also have to pay a fee to the broker who sold the fund.

Fund Manager Reputation

Make sure to choose a fund manager with a rock-solid reputation. Reviews from other investors can be helpful here. They’ll tell you what to look for and steer you away from shady fund managers with a bad reputation.

Performance History

How well has the fund performed historically? Has it typically given high returns, or has it gone through a downturn in the past year? If the latter, you may choose a different fund that’s not threatening to take a nosedive.

Is There a Minimum Required Investment in Gold Mutual Funds?

Gold mutual funds typically have low minimum requirements. You’ll usually need just $1,000 to $3,000 to get started on your investment journey.

Can You Invest in Gold Mutual Funds Through a Retirement Account?

man picking dollar bills on jar full of cash

If you already have a retirement account, such as a 401(k), you can use the money to invest in gold mutual funds. You can go one of two ways: roll the money over to the new account or withdraw it and fund the account yourself.

Rollovers are the simplest option because the plan administrator handles the transfer for you. If you withdraw the money on your own, you have 60 days to move it into a different account. If you don’t, you’ll pay early withdrawal penalties if you’re under age 59½.

How Are Returns From Gold Mutual Funds Taxed?

Mutual fund taxes depend on how long you hold the fund. If you receive a distribution from a fund held for less than a year, the IRS taxes you at your ordinary income tax rate.

If, on the other hand, you hold the fund for 12 months or more, you’ll pay capital gains tax. You’ll also need to report your gains on Form 1099-DIV.

Knowing how the IRS will tax you if you plan to sell mutual funds is important, as the difference between your income tax rate and capital gains tax can be large.

Gold Mutual Funds Compared to Other Types of Gold Investments

Gold mutual funds aren’t the only option for precious metals fans. Other picks include:

  • Gold ETFs: Gold ETFs, or exchange-traded funds, work similarly to gold mutual funds. The main difference is that ETF prices change throughout the day.
  • Gold mining stocks: With this option, you buy shares in a gold mining company. Prices fluctuate based on audits, management performance, and environmental changes.
  • Bullion: You can invest in physical gold by purchasing bullion through an IRA. You can’t keep IRA-purchased gold at home, so you’ll need to stash it in a depository.

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