Forget gold! I’d buy this investment trust to get rich

Buying gold can be a costly and time-consuming activity, but this investment trust offers a way to invest in a diversified portfolio of gold quickly.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The price of gold has surged in recent weeks. Improved investor sentiment following the coronavirus crisis has led to booming demand for the yellow metal. This increased demand has sent the price of gold back to its all-time high of more than $1,800.

Following this performance, investors may be interested in buying gold ahead of further gains. However, owning the precious metal itself may not be the best way to profit from its price performance. 

As such, investors may be better off buying gold mining stocks instead. 

Invest in the gold price 

Buying gold can be a complicated process. Acquiring the physical metal can be expensive, and there are usually high storage costs involved. Products such as ETFs are an alternative, but these can also come with high management charges.

What’s more, there’s no guarantee of profits. If the price of the metal falls, the value of your investment will drop as well. 

On the other hand, mining stocks offer the best of both worlds. Even if the price of gold falls substantially from current levels, many of these miners will still earn a profit. If it continues to rise, their profit margins will grow. 

And unlike physical gold, which usually costs money to store, most mining stocks offer a dividend. This provides an income stream for investors. 

Still, despite the favourable properties of mining stocks over the metal itself, it can be tough picking the right stocks to buy. That’s where the Scottish Investment Trust (LSE: SCIN) can help. 

Investment trust benefits

The managers of Scottish have allocated a significant percentage of the investment trust’s portfolio to gold mining companies. Companies such as Newcrest Mining Limited, Newmont Corp and Barrick Gold Inc. Together these stocks make up around 15% of the firm’s portfolio. 

Scottish owns other investments alongside these gold price plays. The rest of the portfolio is devoted to defensive equities, which can provide a steady income in uncertain times. These include pharmaceutical businesses, telecoms groups and utilities. 

This approach provides investors with the best of both worlds. If the price of gold continues to increase, Scottish’s mining investments will lead to profits for investors. However, if the price of the yellow metal starts to fall, and the rest of the market rises, its other holdings will make up the difference. 

And even if the market goes nowhere fast, investors should profit. Scottish has a preference for dividend stocks. As a result, the investment trust currently supports a dividend yield of 3%. So, even if the share price of the firm goes nowhere for the next few years, investors will be paid to wait. The same can’t be said for the gold price.

As such, if you are looking to profit from the gold price surge, it may be a good idea to snap up some shares of Scottish. The trust’s diversified nature and the dividend may generate high total returns for investors in the long run. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares in the Scottish Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How much would I need to invest in income shares to earn £300 a month?

What kind of lump sum would be required to earn £300 a month by taking advantage of some of the…

Read more »

Investing For Beginners

Up 31% in a month, could this FTSE 250 stock be getting bought out?

Jon Smith takes a look at speculation that's pushing the share price of a FTSE 250 share higher and considers…

Read more »

Investing Articles

Here’s how I’d follow Warren Buffett to start building passive income in 2025

Ben McPoland highlights one FTSE 250 firm with a strong competitive edge that he thinks can continue rewarding investors with…

Read more »

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »