Going for Gold: What is a Gold ISA, and Why Should I Consider One?

What is a Gold ISA?

A Gold ISA is a specific kind of ISA: it’s a type of commodity ISA. This is where your money is invested in goods rather than other vehicles such as companies. Examples of commodities covered by a Gold ISA include a range of goods and various materials including: fuels, staple foods and precious metals – hence the name Gold ISA.

What are the different types of commodity fund ISAs?

• Funds that invest directly in commodities:
  such as gold, natural resources, precious metals etc. This is the ‘purest’ form of a commodity ISA fund, because it is the investor putting their money directly into the commodities themselves.
• Funds that invest in commodity-associated derivatives:
  this is a common approach in the commodity market, as it lets investors get a rate of return which is linked more to the future performance of the market of their commodity of choice.
• Funds that invest in shares of companies related to commodities:
  this allows investors to put their money behind companies working in industries such as agriculture, energy or mining. These can also be termed natural resources funds.
• Funds which invest in a combination of all of the above:
  this very much does what it says on the tin. These funds are a hybrid of the other three types of funds described here.

Why should I consider getting one?

• Because it is an ISA account, this is a very tax-efficient method of investing, as your returns will be protected from capital gains or income tax. You can invest up to £20,000 per year in any ISA, so if you’re looking to invest directly in commodities, then a Gold ISA is a good idea.
• By investing in a commodity or commodities you can diversify the type of investments you have in your holdings. This means you can hold both traditional bonds and non-traditional investments to ensure you’ve not got all your eggs in one basket.
• While these accounts do have a higher associated risk, they also have an associated higher return rate.

What do I need to know before opening one?

• You need to be comfortable with the higher degree of risk
• You need to be comfortable with a longer term approach to investing, as it might take more time to reach your financial goals.
• There might be limits put on by some fuds on the percentage of the portfolio which can be put into one single type of commodity.
• You might be charged for transferring an existing ISA into a Gold ISA but this depends on the provider.
• The commodities market is volatile – it comes with a high associated risk. Therefore, if you have experience in investing then it could be for you but if you have less experience or are a first-time investor, then this is unlikely to be the account for you. 

Read more about Gold ISAs.