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Portfolio > ETFs

Going for the Gold—Conservatively

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Gold has been capturing headlines as the price moved steadily higher since late summer. If the metal’s price volatility unnerves your more conservative clients, consider the following strategies:

Spread It Out

Greg Richardson, MS, CFP and wealth advisor with Halpern Financial in Rockville, Md., recommends up to a 6% portfolio allocation in gold for conservative clients. He diversifies the allocation across exchange-traded funds (ETFs), mutual funds, and broad-basket commodity funds.

He uses SPDRs Gold Trust (GLD) for a direct-investment exposure to the metal that retains liquidity and avoids the hassles of storing physical purchases.

His mutual fund investments focus on gold mining stocks and include funds such as American Century Global Gold Investments (BGEIX) and Fidelity Select Gold (FSAGX).

The final category, broad-basket commodity funds, typically includes agriculture and energy investments. “The downside is you don’t get a true gold play here (with the broad funds) but you are getting a more diversified approach to investing in gold,” Richardson says.

Hit the Stops

Because ETFs are market-traded, you can use limit orders for increased trading control.

That’s the approach taken by John McAvoy, CFP with Waterstone Retirement Services in Canton, Mass. He works with both direct-investment ETFs like GLD and iShares Silver Trust (SLV) and ETFs that invest in mining stocks such as Market Vectors Gold Miners (GDX) and Market Vectors Junior Gold Miners (GDXJ).

After establishing a client’s position, McAvoy places a sell-stop order between 5 and 10% below the purchase price, depending on how much volatility the client is willing accept.

As the ETF’s price moves higher, he moves the sell-stop higher to lock in the gains. It’s a simple strategy to implement, but McAvoy says clients understand the mechanics and appreciate the downside protection.

Hold It

Clients who want to own the physical asset can consider gold coins and bars. Steve Emerick with precious metals broker Asset Strategies International in Rockville, Md., says gold bullion coins like American Eagles and Canadian Maple Leafs are an attractive option for most investors.

These coins sell for roughly 6% premiums over gold’s spot price and their small size makes them easier to trade in smaller amounts versus larger gold bars. 


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