Digging for Gold - Online!

Digging for Gold - OnlineJuly 21, 2008: In order to diversify a portfolio, many experts suggest adding a few sector funds or ETFs. Why? Such a diversification helps hedge a portfolio during a bear market.

Sector funds having a high negative co-relation to stocks help dampen the losses when the stock market takes a nose dive. Quite often one of the sectors suggested is precious metals. Arguably, allocating a portion of our portfolio with precious metals may reduce our overall risk while potentially enhancing returns. Among the precious metals gold has always been the favorite. It has repeatedly demonstrated its effectiveness as a hedge asset against periods of monetary inflation. Some suggested ways of investing in precious metals are:
  • Buy a bullion directly from a retailer
  • Invest in a gold mutual fund
  • Purchase ETFs tracking a gold index
Everbank has come up with an innovative way to invest in metals - "Everbank Metals Select account." Some unique features of this product are:
  • It is up to us to decide how much to invest in metals
  • We can make tactical reallocations based on prevailing market conditions
  • Competitive transaction rates
  • Available metals are Gold and Silver
  • Select the custodial structure that’s right for us:
    • Pooled - $5000 to open, no storage fee
    • Holding - $7500 to open, more control but has a storage fee
  • No monthly fee
  • Professional support: 1-800-926-4922

Our philosophy is to buy and hold for long term. Analysis of past data shows that over long term individual investments have a tendency to return-to-mean for their sector. Hence instead of buying gold or silver individually it makes sense to invest in a very low expense ratio mutual fund for precious metals. This strategy will also help us to avoid active monitoring or trying to time the market.

Towards that end, our first preference is Vanguard Precious Metals and Mining Fund (VGPMX), but unfortunately it is closed to new investors since Feb 02, 2006. Our next pick is an ETF named Vanguard Materials VIPERs (VAW). It employs a passive management investment approach designed to track the performance of the MSCI U.S. Investable Market Materials Index. It has an expense ratio of 0.26% and annual turnover of 12%. Fits perfectly into our strategy.

As a result, we have concluded that Everbank's Metals Select is not a wise choice for us at present. We are looking forward towards your feedback for Everbank's Metal Select Account.

EverBank Metals Select products are not deposits of EverBank, are not insured by the FDIC or any other government agency and the value of the holdings are not guaranteed, and are subject to significant risk, including the possible loss of principal due to market price movement. Investing in metals involves degrees of risk that make them unsuitable for certain individuals. You should carefully consider the suitability of such metals before making any decision.

Image Source(s): iStockPhoto

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