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Robert A. Di Ieso, Jr.

Q: I’m looking for information on adding gold and silver to my investments. What are the advantages and disadvantages of buying coins? What about gold and silver stocks or mutual funds?

A: “We think gold and other precious metals can play a part in a well-diversified portfolio, but our preference is to own the stocks or the mutual funds that would give you that exposure,” says Joe Franklin, a certified financial planner and president of Franklin Wealth Management in Hixson, Tenn.

The trouble with coins, he says, is that dealers charge a premium. And the price you pay isn’t based purely on the value of the underlying gold, silver or platinum. There are other factors at play, such as historical value or the costs associated with minting commemorative pieces.

If do buy coins, you can start by searching the U.S. Mint’s site for an authorized purchaser in your region, then do additional research to make sure that the outfit is reputable. This is an area rife with scams.

Another consideration with owning the actual metal is storage: If you pay a third-party to hold the coins for you, there are additional fees. If you store it in a safe at home, there are additional risks. A bank safe deposit box may be your best bet, but annual fees range from about $20 to more than $200 depending on the size.

The fees and logistics of owning coins are only part of the problem, says Franklin. “Gold in and of itself doesn’t have a lot of utility,” he adds. “It doesn’t pay interest or dividends, and while it can go up in value it tends to be a fear trade.”

If you’re interested in pure exposure to gold, a better bet is an exchange-traded fund, such as the SPDR Gold Trust (ticker: GLD), which aims to track the spot price of gold bullion. “There’s more liquidity and transparency with a fund,” he says. “But you’re still going to see dramatic swings.”

For that reason, Franklin’s preferred strategy is a diversified natural resource mutual fund, which has the flexibility to invest in precious metals — namely via shares of mining companies, some of which pay dividends — energy concerns, and other commodities.

“Managers of these funds have a lot more latitude to pick their spots,” he explains. While he isn’t a proponent of market timing, Franklin warns that commodities tend to go through long periods of over- and under performance. “They’re either really in favor,” he says, “or really out of favor.”