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Diversify with Gold and Other Precious Metals, Funds, Not Coins

August 2006
Diversify with Gold and Other Precious Metals, Funds, Not Coins

Diversify with Gold and Other Precious Metals—Funds, Not Coins

Historically, gold and other precious metals have been considered as a reasonable investment in times of economic instability, geopolitical uncertainty, inflation, and currency devaluation. Buying precious metals isn't just for collectors of rare coins; a number of mutual funds are now offering access to these investments as well.

A potential advantage of investing in gold and other precious metals is that they can behave differently to inflation and economic down-turns than other assets, which can provide a measure of diversification to a portfolio of stocks, bonds, and cash. Although diversification does not eliminate the risk of loss, it can help to reduce the market volatility of your portfolio.

However, investors considering precious metals should bear in mind that the performance of these investments are never guaranteed. For example, gold prices have been volatile over the past thirty years. Historically, gold prices have fluctuated: they declined from more than $800 per ounce in the 1980s to $250 per ounce in the 1990s. As of August 2005, gold was around $435 per ounce. Although precious metal investments can provide some diversification to your portfolio, you definitely do not want to be too concentrated in them.

If you are considering precious metal investments for your portfolio, buying shares of a precious metal mutual fund could be a reasonable way to accomplish this. This is because portfolio managers generally have experience in the industry. Also, these funds typically purchase several types of precious metal investments for their overall fund portfolio.

Note: Mutual fund investments of any kind involve risk and are offered by prospectus only. Investment return and principal value will fluctuate so that upon redemption an investor's shares may be worth more or less than original value. An investor should carefully consider the investment objectives, risks, charges, and expenses of a fund prior to investing. The fund prospectus contains this and other information about the investment company. For a copy of the prospectus, you should contact your financial advisor. You should also read the prospectus carefully prior to investing money.

Source: Selena Meranjian, "Should You Be A Gold Bug?" (Fool.com, Feb. 3, 2005)

As federal and state tax rules are subject to frequent changes, you should consult with a qualified tax advisor prior to making any investment purchase decisions.

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