Thoughts on Vanguard Precious Metals and Mining (VGPMX)

Weather11am

I'm thinking of buying some VGPMX for my IRA. What are your opinions?

derryb

VGPMX is a mutual fund that holds equity securities of companies in the gold and precious metals industries. Mutual funds carry fees and expenses that the individual companies it is made up of do not carry. Your are paying fees for the benefit of a fund manager. Why not go with the no fees alternative ETFs such as GDX for gold mining equities or GDXJ for the junior miners.

ETF database

If you expect postive moves in gold or silver there are some levereged ETFs. I like AGQ that does twice the move in percentage that silver does. Of course it works the other way around when silver goes down.

ETFs trade just like stocks, pay only your commission fee to trade.

Weather11am

ETFs have managerial fees too.

Weather11am

And then commissions like you said on top of that to actually buy them.

Edit: Or sell them.

derryb

Advantages of ETFs over Actively-Managed Mutual Funds

-Expense ratios are much lower: Actively-managed mutual funds incur a management fee that can sometimes be more than 2.00%. Also, most ETFs do not have 12b-1 fees. ETF expense ratios are typically in the 0.25% – 0.75% range.
-No investment minimums: While mutual funds may often have minimums as high as $1,000, $5,000, or more, ETFs can be bought or sold in as little as one-share increments.
-Option and Short-selling opportunities: Because ETFs are traded on a securities exchange throughout the day, the opportunities for option and short-selling exist.
-Lower taxes: Actively-managed mutual funds are subject to much higher turnover than ETFs. Therefore, tax gain distributions are much more frequent with mutual funds.
-More trading flexibility: Mutual funds are only priced once per day, at the close of the market. Conversely, ETFs are priced throughout the day and can be bought and sold on the exchange.
-More transparency: ETFs are completely transparent. Investors can see exactly which securities are held in each ETF. Actively-managed mutual funds do not provide all holdings to their investors.

carew4me

Please note that taxes for Metals based ETFs are harsh:

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Metals ETFs - If you trade or invest in gold, silver or platinum bullion, the taxman considers it a "collectible" for tax purposes. The same applies to ETFs that trade or hold gold, silver or platinum. As a collectible, if your gain is short-term, then it is taxed as ordinary income. If your gain is earned for more than one year, then you are taxed at either of two capital gains rates, depending on your tax bracket. This means that you cannot take advantage of normal capital gains tax rates on investments in ETFs that invest in gold, silver or platinum. Your ETF provider will inform you what is considered short-term and what is considered long-term gains or losses.

Read more: http://www.investopedia.com/articles/exchangetradedfunds/08/etf-taxes-introduction.asp#ixzz1Xs0730vA
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derryb

<< <i>Please note that taxes for Metals based ETFs are harsh >>


OP is dealing with an IRA. Gains are not taxed. Withdrawals are taxed, after converting to cash, upon retirement.

MsMorrisine

<< <i>

<< <i>Please note that taxes for Metals based ETFs are harsh >>


OP is dealing with an IRA. Gains are not taxed. Withdrawals are taxed, after converting to cash, upon retirement. >>



also OP's main question was Re: mining

I do think the level of bogusness on the "collectible" aspect is high, unless physical delivery takes place.

does trading silver and gold futures also incur "collectible" taxes?

these are money trades, not physical trades.

roadrunner

Last I knew the gold mutual funds are not treated as bullion since the vast majority of them are about 80-95% mining companies, not bullion. I was in TGLDX for a couple years
back in 2004. I also like USAGX. But the gold mutual ETF you pick should be based on the quality/potential of their top 10-15 holdings, any pentalites for early sales within 90 days of
purchases, and other onerous fees. Vanguard, Fidelity, Scudder, Global, etc. have decent gold mutual funds. Some of them stick to the more stodgy seniors while others fast track the juniors and steer clear of the slow moving bohemoths. If your company or self-directed IRA allows a gold mutual fund, it probably allows ETF's as well. Unfortunately many of the company 401K's are set up to avoid anything but brokerage index funds. You're basically buying the stock market in blocks of small, mid, and large caps.

As derryb said the etf's like GDX, GDXJ, and SIL offer exposure to miners in gold and silver w/o being classified as bullion etf's. Those are traded during the day unlike the mutual funds
where you can only sell or buy one time a day based on closing prices. Just in the event you'd like to bail on your fund you have that option with GDX and others any hour or minute you
like between 9:30-4:00 EST. The gold mutual funds tend to have more selections than the ETF's. But even today GDX has 30 holdings while GDXJ has 73. It's like buying a mutual fund in disguise. And with a selection like GDX or GDXJ at least you know that if the market is moving up, your stock will be as well. If you start picking your own miners, for every couple that perform well, you'll have some dogs that just sit on the fence that hold back your average returns to less than the basic ETF's. If you like leverage, then NUGT is a double leveraged version of GDX and helps to offset the bohemoths. I don't think there is a 2X GDXJ version yet.

roadrunner

jmski52

I had a Vanguard Precious Metals Fund in my IRA back in the late 1980's, and it held mostly mining stocks. When I rotated out of that fund and into other sectors in my IRA, there were no special considerations. When I finally liquidated my IRA in 2008, I paid taxes on the gains, plus the penalty, but nothing was taxed as a collectible at a collectible rate. Hey, the taxes were plenty high anyhow.

derryb

<< <i>Just in the event you'd like to bail on your fund you have that option with GDX and others any hour or minute you
like between 9:30-4:00 EST. >>


you can also trade ETFs, as you can stocks, during pre- and after market trading hours. This is especially important when CME announces a margin requirement hike after normal market hours.

self managed IRAs are the perfect vehicle for non-physical metal investing. I can buy a $300K silver investment for only $7 with Scottrade, monitor it and dump it for another $7. Based on my research, I personally would never use an IRA for physical metal. The drawbacks heavily outweigh any advantages.