Many investors see gold as a good investment, especially as a hedge against fluctuations in the economy. Some investment advisers will recommend up to 10 percent of a well-diversified portfolio be in gold. Still, that doesn’t mean that your children should necessarily buy gold as soon as they can. Take time to consider carefully the pros and cons of such a step.
First, gold is a long term investment. Gold prices rose from $35 an ounce in 1970 to where recently they are in the neighborhood of about $1200 an ounce. As you can see, in the last 45 years the price of gold has risen dramatically.
Second, although many people see gold (and other precious metals) as the ultimate defense against the collapse of the US or world economy, in reality the price of gold is determined by simple supply and demand.
Gold certainly isn’t my favorite investment for children. I wouldn’t advise children to invest in gold unless they have a net worth of more than $500,000. Gold can cushion against financial catastrophe, but it’s not going to pay interest or dividends.
If your child still wants to invest in gold here’s how to do it.
Gold comes in various sizes, from thin wafers all the way up to 400-ounce bars. The most convenient way to own gold bullion is by purchasing one ounce coins that are easy to store and sell. Your children can choose American Eagles, Canadian Maple Leafs, South African Krugerands, Australian Kangaroos etc.
Before your children make a purchase, be sure they get quotes from at least three reputable dealers. Many dealers can be accessed on the web. You may want to check the Young Numismatists of America at www.ynaclub.org, a site for young people interested in coins. They have dozens of links listed to numismatist organizations. When contacting a dealer, your children should be sure to ask for the “market or buying and selling” price of what ever bullion they are interested in. Then if they want to sell their coins they’ll know what they can get for them.
Investing in precious metal stocks – shares in a publicly traded mining company – may be more volatile, but it could be a more profitable investment than gold coins or bullion. Keep in mind that mining share prices tend to swing more widely than the price of the metal they dig up. That’s because their share prices also are influenced by fluctuations of the stock market and the economy, and of course by how the mining company is running its affairs.
A more conservative way to invest in mining stocks is for your children to buy shares in one of several dozen precious metal mutual funds. Typically there is a minimum investment – often $1,000. These funds invest in mining stocks, and their share prices tend to fluctuate more widely than the actual price of gold because these funds often own shares in more than 20 mining companies. Yet investing in one of the funds is safer than choosing just one or two individual stocks. As with any mutual fund, precious metal funds are managed by professionals. Check the Value Line Mutual Fund Survey, one of many available at your local library. Here you can find the returns and investment styles of most gold funds. Gold certainly isn’t my favorite investment for children.
To avoid buying and having to store gold coins, some people believe that purchasing gold jewelry affords them the same protection. Since gold jewelry is virtually never pure gold, but rather an alloy of some kind, it is essential that purchasers understand the ins and outs of owning gold in this manner. These two websites of non profit organizations offer a wealth of information about the subject including karat stamping.
To guard against being fleeced, teach your children to make sure that gold jewelry is stamped with a trademark, as well as a karat mark. And make sure that your children only buy jewelry from a reputable jeweler.
After your children buy a piece, they can have it appraised for its gold content. If they have been swindled, return to the jeweler with the appraiser’s report and ask for your money back. The can also contact the Jewelers Vigilance Committee for assistance if you discover a problem.