How to Buy Mining Shares
- 1). Before purchasing a single share, decide how much money to allocate to a position in gold-mining shares. A common rule of thumb is to have a minimum 10 percent of a portfolio in precious metals, but because of the other risk factors particular to mining companies, less than half of the precious-metal allocation should be mining shares.
- 2). For some, a single large cap mining company will fill the mining allocation in their portfolio. These global firms usually offer stable, if slow, growth and a safe dividend. Other investors may choose to diversify within the mining sector to minimize company-specific risk or speculate in younger, unproven companies. Factors to consider in choosing mining stocks are debt, cash flow and mineral reserves. Junior miners may have an impressive list of properties but will have to assume significant debt to initiate actual production. Exploration companies sink or swim on their ability to locate commercially viable ores they can sell or lease to larger companies with means for production.
- 3). Use ETFs and mutual funds. Those less confident in their stock-picking skills should use one of several gold mining funds that track a basket of gold miners. The most popular of these are the AMEX Gold BUGS Index, trading as ticker symbol HUI; the Philadelphia Gold and Silver Index, XAU; and the Market Vectors Gold Miners ETF, ticker symbol GDX. A number of mutual funds concentrated in gold-mining shares are also available.
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