As the market grows increasingly hot, it's hard not to wonder “when will it come down?” If you're worried about your stock market portfolio is too concentrated, there may be a solution to consider: precious metals ETFs!
Precious metals have historically been either inversely or uncorrelated to equities. This means that if the market does crash, you'll have at least some protection. This post will give an overview of the best precious metals ETFs of 2021.
Quick disclaimer, I am not a financial advisor and past performance does not guarantee future results/investment returns. Whether you're investing in mutual funds, individual stocks, or ETFs, always do your research before allocating any money.
Why Precious Metals ETFs?
You might be wondering right now “why precious metals out of all the possible investment choices?” The main reason is that physical precious metals are uncorrelated (for the most part) with the rest of the stock market. This means the price of gold and the price of silver won't be affected by the performance or market price of an index like SPY. Before we get into this, it's important to get clear on what exactly “precious metals” are.
When investors talk about precious metals, they are usually referring to gold, silver, and platinum. Gold is the grandfather of precious metals and so valuable for its durability, malleability, and currency applications. Differing slightly from gold, silver is thought of more as a store of value and has more industrial uses. Platinum is also considered an industrial metal and usually fetches higher prices than gold.
Now onto what makes these metals so special. Though precious metals might not boost your investment return, they offer some incredible inflationary protection. Unlike money, you can't simply print more gold or silver. Also, precious metals typically offer good “upheaval protection.” What this means is that if the United States stock market were to plummet tomorrow, in theory, precious metals should not suffer as much (hence protecting your overall portfolio).
Pros and Cons of Precious Metal ETFs
Regardless of if you want to buy the physical metal (gold bullion & silver bullion) or precious metal ETFs, it's important to understand the advantages and disadvantages of any investment before diving in. Here are some of the pros and cons of precious metal ETFs:
- A store of value – regardless of economic conditions and the global economy, precious metals generally hold their value. This makes them an excellent thing to invest in when the economic future is uncertain.
- Low correlation to stocks – precious metals have a low-no correlation with the stock market and bonds. This means by investing in precious metals you can lessen your possible loss in the event of a market correction or market crash.
- Security – for the most part, physical precious metals can't be hacked. Even with ETFs, there is more security in investing in precious metals than something like crypto.
- Extra costs – because gold bars can't just be downloaded to a file or stored online, they require extra costs to be processed and stored. This often falls (partly) on the shoulders of investors to pay in the form of extra management fees.
- Lack of cash flow – with precious metals ETFs, there's no guarantee of future results (just like any investment) but there also isn't any cash flow to keep you going. This is in stark contrast to an investment vehicle like real estate where the primary profits are made from cash flow.
- Value change – just because precious metals aren't correlated with the stock market doesn't mean there aren't risks. The net asset value of a gold ETF could still plummet if the price of gold falls.
These are the high level pros and cons but if you're serious about investing in precious metal ETFs, you should definitely do more of your own research.
5 Best Precious Metals ETFs of 2021
So you've done your own research and have decided that you want to invest in precious metal ETFs. You chatted with some investment advisors and now have a whole bunch of U.S. dollars you're ready to turn into paper gold! But what now? There are SO many ETFs on the market and so little information about each. Which ones should you choose?
Don't worry. This section will give you the 5 best precious metals ETFs of 2021. You're sure to find something that you like on this list.
iShares Silver Trust (SLV)
- Assets Under Management: $14.10B
- Expense Ratio: 0.50%
- Average Daily Volume: 21M
- Total Return (To Date): +49%
- Issuer: iShares
Founded in 2006, iShares Silver Trust (SLV) aims to provide investors with daily exposure to the day-to-day movements of the silver bullion. In other words, buying this ETF is similar to you directly paying the spot price for physical silver. SLV is convenient and cost-effective, making it a perfect addition the portfolio of any investor who wants to hedge themselves against inflation.
VanEck Gold Miners ETF (GDX)
- Assets Under Management: $14.66B
- Expense Ratio: 0.51%
- Average Daily Volume: 20M
- Total Return (To Date): -23%
- Issuer: VanEck
Similar to SLV, GDX was created in 2006 but instead of silver, this gold miners ETF tracks… well… gold! GDX seeks to replicate closely the performance of the NYSE® Arca Gold Miners Index® before any fees and expenses. Most of this index (80%) comprises of gold and silver mining companies. Though it's arguable that mining is a dying industry, GDX still provides investors with some strong correlation to the gold market without being too exposed.
Aberdeen Standard Physical Silver Shares ETF (SIVR)
- Assets Under Management: $1.04B
- Expense Ratio: 0.30%
- Average Daily Volume: 439K
- Total Return (To Date): +55%
- Issuer: Aberdeen
When it comes to ETFs to buy during market uncertainty, Aberdeen's Standard Physical Silver Shares ETF (SIVR) takes the cake. Created in 2009 after the great housing crash, this ETF seeks to track the exact physical price of silver. Something that sets SIVR apart is that they have a physically-backed methodology. What this means is that Aberdeen literally physically holds the silver instead of merely investing in silver futures contracts. This gets rid of a lot of the complexity involved in investing in precious metals ETFs and makes SIVR an attractive choice for investors looking to make a short-term precious metals play.
iShares Gold Trust (IAU)
- Assets Under Management: $28.61B
- Expense Ratio: 0.25%
- Average Daily Volume: 9M
- Total Return (To Date): +289%
- Issuer: iShares
One of iShares most popular funds, the Gold Trust (IAU) offers investors an easy way to access the movements of the gold bullion. The fund's investment objective is simply to track gold's spot price as closely as possible. It does this by also physically backing it's holdings and has gold bars in vaults all around the world. If you read through iShares' summary prospectus, however, you'll find that you'll need to disclose this investment on your tax returns. The reason is that IAU is considered a collectible in the eyes of the IRS. Still, this fund is an excellent choice for long-term gold investors.
US Global GO GOLD and Precious Metal Miners ETF (GOAU)
- Assets Under Management: $102.64M
- Expense Ratio: 0.60%
- Average Daily Volume: 29K
- Total Return (To Date): +38%
- Issuer: US Global ETFs
Founded in 2017, GOAU is the youngest ETF on this list. Unlike its peers, GOAU is an actively managed fund comprised of only 28 main holdings. The focus for GOAU is to carefully select 25ish companies out of 100 active gold producers to put money into. This is great for when gold is in a bull market, becausely generally speaking when gold goes up, the prices of gold mining companies go up even further!
Recap of the Best Precious Metals ETFs of 2021
Precious metals are an awesome way to diversify your portfolio away from the general stock market. Likewise, precious metals ETFs are probably the best vehicle you can use to go about it. Of course, with every investment there are pros and cons. The pros of precious metals ETFs include:
- Being a store of value
- Having low correlation to stocks
- Being relatively secure
The cons are:
- Usually requiring extra costs
- Producing a lack of cash flow
- Having a possible sudden value change
If you do decide to go ahead with investing in precious metals ETFs, here are 5 you should definitely consider:
- iShares Silver Trust (SLV)
- VanEck Gold Miners ETF (GDX)
- Aberdeen Standard Physical Silver Shares ETF (SIVR)
- iShares Gold Trust (IAU)
- US Global GO Gold and Precious Metal Miners ETF (GOAU)
Always be sure to do your own research and consult your own financial advisor before putting any money into the market. That being said, definitely look into precious metals ETFs. In the case of a stock market fallout, you'll be happy you're holding onto some gold 😉
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