Hello,
1.) Wanted to add gold to my portfolio but my account didn’t allow me to buy commodity. Therefore I bought gold stock (YRI.TO). In term of diversification, would it be a big difference between buying a commodity gold( or gold future) vs gold stock?
2.) If EFT has the same diversification feature with lower mgmt cost, why mutual fund still exists ?
3.) Which broker do you guys recommend if I want to invest Canada, US, Europe and HK stocks ?
Many thanks
What are you trying to accomplish? That is, is this a trade or investment? Are you looking to put this into a retirement account or traditional brokerage? Do you want exposure to the miners or just the metal?
I’ll make some assumptions: 1) You want to own the metal, not gold mining companies. That eliminates mutual funds as nearly all of them buy mining stocks and not GLD.
Now, if you’re looking at this as a short-term trade then you’ll need either an ETF or fund (active or passive) of miners or a pure play on the metal. Choosing between the miners and the metal is really hard to get right and a lot of very smart people have gotten burned playing the miners. The reason to go with the miners is because they’re essentially a leverage bet on the price of gold. Unless you have a ton of conviction, I’d go with the metal over the miners.
That basically leaves you with GLD. It’s the biggest and most liquid.
Hope that helps.
The only thing I’d add is considering storage costs for physical gold. Unless you’re comfortable just burying a stash of gold in your backyard (would be a hell of a treasure hunt for your descendants)
You realize storage cost for personal gold holdings is basically nothing, right? I mean, a shoebox full of gold is worth over $500,000.
Sorry my question is not clear. Let me clarify.
I have my own portfolio (100% equities). Before the Britain Election for the Brexit, I worried about the market would fluctuate so I would like to add Gold to my portfolio (Target: 25% gold and 75% Equity) (Gold itslef is high risk but as we learned from CFA books, it can reduce risk by adding commodity to the diversified portfolio. Correct me if I am wrong) . I wasn’t trying to predict the gold price would go up just like no one can predict whether the Brexit would happen or not. My purpose was to have a better diversification to my portfolio (of course if Brexit did happen, gold or gold related products should go up)
However, since my account didnt allow me to trade commodity. Then I decided to buy a public company that majoring in mining gold (YRI.TO)
My original plan for the Asset allocation was 75% equity / 25% commodity - Gold. Due to the restriction, I bought YRI.TO so my portfolio was still 100% equity but 25% of them is YRI.TO.
Question: is there a difference in term of diversification (also asset allocation) btw (75% equtiy / 25% commodity - gold) and (100% equity - 25% of them is YRI.TO)
Storage cost applies only if you’re using a bank. Shoebox/backyard = zero costs, but if you’re robbed then all is lost.
My point is that even a small, secure safe can store a lot of gold in dollar terms. It’s a one time cost, or you can get a safety deposit box at a bank. Neither are expensive.
I’m not meaning to argue, I am genuinely curious. I don’t understand the concept behind what I highlighted. Seems like investing in miners would actually dilute your exposure to the price of gold because there are other factors that make up the risk with a mining company.
…is it “leveraged” because along with exposure to gold, you get a dividend as well?
Yes, absolutely. You own a miner, not gold. The miner has a ton of risk that owning the physical (or an ETF/fund invested solely in the metal) does not. You need to look at what mines they operate, how much gold is left in them, are they finding new mines, how has their safety record been…so much to learn.
Sorry, but I believe you’re in over your head. Not to mention, 25% of your portfolio in one stock isn’t proper diversification.
Thanks for advice
What if if he doesn’t have much capital to begin with. Doesn’t make sense to spread $10,000 over 20 stocks lol
Hello OP. Isn’t there a gold ETF like GLD available in Canada? If not, you probably should open a US stock trading account. Pro Tip: you don’t need a HK or UK stock account if you have a US account. The US market is by far the most diverse in selection and offers liquid vessels for most other markets. The biggest international stocks tend to have US ADRs also. In fact, one reason why the retail structured product market is so large in Europe is that it’s harder for European investors to get exposure that the US has in abundance.
Also, given that Canadian stocks are highly correlated with commodities (40% of the Canadian market is in materials or energy), are you sure that moving assets into another commodity is the best way to diversify? I guess gold would hedge against Canadian currency fluctuations. However, gold is generally supposed to be a zero yielding asset. So perhaps it might be worth considering some kind of international fixed income exposure as well. Gold is historically expensive at the moment, since interest rates are low.
In terms of brokers, honestly, sophisticated execution platforms don’t matter for 95% of people. Some brokers offer “research” as a selling point, but that stuff is crap. Choose the broker with the lowest execution costs. You should be using limit orders for everything.
I’m not sure why physical gold is even a consideration. It would be really impractical. Storage costs would be negligible, yes. However, transaction costs would be significant. Even if you pay 1% spreads for each buy or sell, that would already wipe out any advantages of choosing the physical commodity over liquid proxies.
"2.) If EFT has the same diversification feature with lower mgmt cost, why mutual fund still exists ? "
Ok, first of all, the claim of lower management cost is not always true, assuming we are comparing passive funds. Or at least, the differences are perceived to be negligible to most people. Mutual funds also tend to not charge transaction fees, so the execution cost savings might eventually outweigh any management fee disadvantage.
If you ask me though, some people prefer mutual funds because they don’t want to be in charge of trading by themselves. With ETFs, you must consciously open a brokerage account, and enter buy/sell orders yourself. This is scary for people with no investment experience. It is much easier to simply open a mutual fund account and get filled at the closing price every time.
Another perceived benefit of mutual fund accounts is the option to choose actively managed funds - if you open a Vanguard account, you can buy their proprietary funds that you can’t get elsewhere. Whether you believe a particular active fund is better than a passive fund is up to you.
No, it’s because of operating leverage. To make it easy, let’s say you’re looking at a jr. gold miner - a pure play gold miner at that. After their initial setup costs they’re basically paying for gas, oil, and employees (very simply put). So, the marginal cost to extract an additional ounce of gold from the ground is very low. As the price of gold goes up, nearly all the incremental increase falls to the bottom line.
This works very well when the price of gold is rising (obviously) and it’s not uncommon for the miners to double (or more) in price during a gold rally. Take the beginning of this year, for example. Gold was up nicely but the jr. miners were up about 80-100%…approximately 3x what gold did.
But, if gold remains flat or decreases, the miners tend to struggle/shit the bed. Over the long term, with few exceptions, it’s been better to own the physical than trying to time or hold the miners.
thanks! I appreciate that. Makes sense now.
The entire premise of owning physical gold is to completely remove counter party risk.
+1
If you want to own gold, really own it and not trade it here and there, there’s nothing like holding it in your hands.
If only there was a product that would allow you to hold like 20 stocks at a really low cost. Everyone could chip in together and buy large amounts to reduce costs, sort of like mutual insurance. Heck we could call it a mutual…whats the word…fund? a mutual fund? Yeah, that’s a great idea! Lets create this thing!
Are you really concerned about GLD credit risk? What major ETF has ever defaulted, like ever? I understand the argument of counterparty credit. However, like I said earlier, the sheer illiquidity and inconvenience of actually buying physical gold is a greater loss than any credit risk in the ETF. Where would you even buy gold bars, and what bid ask spread would you pay?
Are you being snarky or serious? Gold is incredibly liquid. Go to a local coin dealer or any of several reputable online gold dealers like http://www.apmex.com/. Even eBay is a pretty good place to get good deals on gold and silver. Just have to buy from a seller with good feedback.
The premium depends on the volume you want to buy. At this very moment, you can buy a 1 oz gold bar for $1,370.29. The spot price this morning is $1,348.40. If the $20 premium scares you off, gold isn’t for you.
Or, buy GLD if you want. You’ll just never actually get your gold if you ask for it. Have fun collecting paper.
I’m fairly certain there is a passage in the CFA Level III curriculum that says owning stocks of miners (or other commodity producing companies) isn’t a great way to gain exposure to that commodity. Reason being is that these companies often hedge their own exposure to the commodity. Will it increase your exposure from zero? Yes, but likely not as much as owning a commodity ETF or the physical commodity.