Gold is long seen as a store of value. While gold's history began in 3000 B.C, when the ancient Egyptians started forming jewelry, it wasn't until 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. Because gold jewelry was already widely accepted and recognized throughout various corners of the earth, the creation of a gold coin stamped with a seal seemed to be the answer. Following the advent of gold as money, gold's importance continued to grow. History has examples of gold's influence in various empires, like the Greek and Roman empires. Great Britain developed its own metals-based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa and the Americas. Gold is a hedge against a depreciating Rand, a declining US Dollar and rising inflation. Investors typically look at gold as a safe haven during times of political and economic uncertainty. Gold is a useful diversifying component to your portfolio. Many good balanced funds use gold as part of their diversification strategy. Over the 30-year period from 1986 to 2016, the Rand gold price has risen from R955 to R19,200, an increase of 1,909%! This represents an annualised return of 10.3%. You may invest in gold by buying:
Krugerrands Gold coins Gold ETFs such as ABSA NewGold ETF Gold Bullion Gold jewelry Investing in gold mining companies is not the same as investing in gold. Investing in a gold mining company subjects you to prospects of the gold mining industry, management, operations and financial performance of the company, which are completely different and a lot riskier compared to investing in gold. To read more about gold as an investment, read http://www.investopedia.com/articles/basics/08/invest-in-gold.asp
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An ETF, or exchange-traded fund, is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. Unlike unit trusts, an ETF trades like a common stock on a stock exchange. ETFs experience price changes throughout the day as they are bought and sold. ETFs typically have higher daily liquidity and lower fees than unit trusts, making them an attractive alternative for individual investors.
Because it trades like a stock, an ETF does not have its net asset value (NAV) calculated once at the end of every day like a unit trust does. ETF investors are entitled to a proportion of the profits, such as earned interest or dividends paid, and they may get a residual value in case the fund is liquidated. The ownership of the fund can easily be bought, sold or transferred in much the same was as shares of stock, since ETF shares are traded on public stock exchanges. There are now over 5,000 ETFs worldwide. In South Africa there are 57 ETFs listed on the JSE. The ETFs available in South Africa can be classified into seven categories: South African Equity International Equity Bond Commodity Money Market Multi-Asset Class Property Equity You can buy ETFs listed on a stock exchange, such as JSE, through a reputable stockbroker or an ETF platform such as etfsa.co.za. Your return from owning ETFs comes from two sources: dividends or interest paid to you, and increase in share price (capital gains). Dividends received are subject to 20% Dividend Withholding Tax; capital gains are subject to Capital Gains Tax. ETF share price can go up or down. When share price goes up, you make a profit on paper. When share price goes down, you make a loss on paper. Before you invest in ETFs, you must do your research. You should identify the ETFs you would like to invest in, read the factsheets (Minimum Disclosure Documents), have a good understanding of their underlying assets, prospects and financials. After you have bought an ETF, you need to continue to monitor its performance, changes to underlying assets and future prospects, to determine whether it is appropriate to stay invested. Working with an advisor specialising in ETFs will add value to your ETF investing process. Having a good understanding of technical analysis may help buying ETFs at better prices. ETF investing is a long-term activity. It is NOT buying and selling ETF shares regularly in the hope of making quick profits. A word of advice: I consider the International Equity, Commodity and Property Equity ETFs to be the most interesting for investors to consider as part of their diversified portfolio. But remember, don’t base your investment decisions on looking at past performance figures only. You need to be forward looking, thinking about what is likely to do better going forward. |
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