Evaluating Gold Mutual Funds
One of the best investments over the last few years has been gold. The price of gold has more than tripled recently meaning that the people who were invested in gold saw huge profits. Most experts agree that the price of gold is going to continue to go up for many years to come. One of the easiest ways to invest in gold is with mutual funds, however that requires that you know how to evaluate a gold mutual fund.
The first thing that you are going to want to look at when you are determining how to evaluate a gold mutual fund is just what the fund is investing in. You would think that it would be obvious they are investing in gold. While there are some funds that only invest in gold bullion most invest in other things as well. The reason is that if a fund invests strictly in gold it will offer the same return as every other fund that is invested in gold. Therefore most of them will expand their investments in the hopes of being able to offer a higher return.
The most commonly held investments in gold mutual funds besides the gold itself is the stocks of gold mining companies. Potentially these offer a much greater return since the cost of mining the gold is unlikely to rise all that much. If it costs a certain amount to get the gold out of the ground and then the value of the gold increases the profits of the mining company should increase as well, by a far larger percentage than the value of the gold. For example if it costs $800 to mine the gold and the value of the gold is $1000 an ounce the mining company makes $200 an ounce. However if the price of gold goes to $1200 the value of the gold has gone up twenty percent but the mining companies profits have doubled. Of course the reverse is also true if the price of gold goes down. Therefore gold stocks can also add risk to the mutual fund.
The other thing that you are likely to see in your gold mutual fund are futures and options, these are again used in the hopes of offering higher returns for the fund. They of course also increase the risks that are being taken. You are going to have to look at what the fund is investing in to decide if the risks are worth the potential rewards.
When all is said and done the most important thing with a mutual fund is how well it performs. Therefore you are going to want to look at what the returns have been in the past. This is of course no guarantee of future performance but it should give you an idea of how successful the fund has been. Just make sure that you do know what they are investing in so that you can determine what kind of risks are being taken so you can make sure that it is appropriate for your portfolio.