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For many investors, a long term investment in outstanding gold mining companies through a mutual fund, such as Midas Discovery (Ticker: MIDSX) (www.MidasFunds.com), may offer an attractive way to obtain the benefits an allocation to gold.
A 5% to 15% allocation of an investor’s assets may be appropriate, depending on various factors, including: the investor’s age, risk tolerance, and overall asset holdings.
Typically, the younger the investor, the higher the allocation to gold to allow the long term capital appreciation potential of excellent gold mining companies to be achieved; older investors requiring asset stability and current income should consider maintaining a smaller allocation.
Investors should also consider their ability to accept commodity volatility and risk. A smaller allocation is better if volatility would cause the investor to panic and “cash out” during a market downdraft. Lastly, investors should consider their overall asset allocation between “financial assets,” such as stocks and bonds, versus “hard assets,” such as home equity. For example, a renter with a sizable IRA and no hard assets should consider maintaining a larger allocation to gold , whereas a homeowner who has paid off the mortgage and has a modest stock portfolio may want to consider maintaining a smaller allocation.
In my experience of over 25 years in the sector, I have yet to see any institutional or individual investor make money over time by fast in-and-out trading of gold bullion, options, or futures. Our advice is to invest through a mutual fund, such as Midas Discovery (Ticker: MIDSX), which seeks to hold the best gold mining companies and, to the extent the fund performs, let the wonderful effects of compounded returns work in your favor over the long term.
A mutual fund is appropriate for many investors because it is designed to provide immediate diversification within the sector and continuous portfolio oversight, which are normally not practical for an individual investor. Moreover, gold investing in outstanding gold mining companies through a mutual fund can be very rewarding, to the extent the fund performs, with compounding returns of equity. For example, Midas Discovery (Ticker: MIDSX) (www.MidasFunds.com) seeks to emphasize gold mining companies with financial strength, expanding gold production profiles, strong free cash flow, and promising exploration potential.
In our view, individual investors typically should not own gold or silver in bullion form at any time. Bullion can have a negative return on equity due to its cost of storage, insurance, and other holding expenses. Additionally, entry and exit costs for gold and silver bullion and gold coins normally are prohibitive since trading spreads at a retail level are usually substantial and guarantees of investment-level purity (i.e. “4 9s”) are uncertain.