Gold silver precious metals funds

Over the millennia, gold and silver have served as mediums of exchange or currency because these metals have intrinsic value and cannot be debased. These precious metals are used not only in jewelry but also in less-frivolous applications such as manufacturing.

As investments, gold and silver do well during bouts of inflation. For example, during thel970's, when inflation zoomed up in the U.S. and stocks and bonds went into the tank, gold and silver company stocks skyrocketed. People were concerned that our government was going on a money-printing binge.

Over a very long term, precious metals are lousy investments. They don't pay any dividends, and their price increases just keep you up with, but not ahead of, increases in the cost of living. Although this is better than keeping cash in a piggy bank or stuffed in a mattress, it's historically not been as good as bonds, stocks, and real estate.

If you want to invest in precious metals, don't buy the bullion itself; storage costs and the concerns over whether you're dealing with a reputable company make buying bullion a pain. Also avoid futures and options (see Chapter 1), which are gambles on short-term price movements.

Among the better funds are the Vanguard Gold & Precious Metals Fund, which, like most gold funds, invests in mining companies' stocks worldwide, because many are outside the U.S. in countries such as South Africa and Australia. This fund has one of the best track records among precious metals funds and has been around since 1984. Annual operating expenses for this tax-friendly fund are 0.5 percent. Minimum initial investment is $3,000 ($1,000 for retirement accounts).® 800-662-7447.

American Century Global Gold invests only in gold companies in North America. Around since 1988, this fund has been managed by Bill Martin since 1992. Annual expenses are a reasonable 0.6 percent. This fund can be purchased through most discount brokers without a transaction charge. Initial minimum investment is $2,500 ($1,000 for retirement accounts). « 800-345-2021.

If you expect high inflation, or if you just want an inflation hedge in case you expect the end of civilization as we know it, stick with a gold fund. But these funds have wild swings and are not for the faint of heart or for the majority of your portfolio. To illustrate why, consider this: In 1993, the Vanguard Gold fund rocketed up 93 percent, whereas in both 1992 and 1990, it lost almost 20 percent.

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