Many investors see gold as a good investment, especially as a hedge against inflation or downturns in the economy.
Some experts will even advise clients to put as much as 10 percent of a well-diversified portfolio in gold. Still, that doesn't mean that your child should necessarily buy gold as soon as he can. Take the time to consider carefully the pros and cons of such a step.
First, gold is a long-term investment. Although gold prices rose from $35 an ounce in 1970 to $825 in 1980, they have held between $350 and $400 an ounce for the last decade. In the last 20 years, in fact, the price of gold has risen almost exactly in line with inflation.
Second, although many people see gold and other precious metals as the ultimate defense against the collapse of the U.S. or world economy, in reality, the price of gold is determined by simple supply and demand.
Personally, I wouldn't advise children to invest in gold unless they have a net worth of more than $500,000. Gold can cushion against financial catastrophe, but it's not going to pay interest or dividends. If your child wants to invest in gold, here's how to do it. Investing in Gold: A Primer
Gold comes in various sizes, from thin wafers to 400-ounce bars. The most convenient way to own gold bullion is by purchasing 1-ounce coins that are easy to store and sell. Your child can choose among American Eagles, Canadian Maple Leafs and South African Krugerrands.
Before your child makes a purchase, be sure he gets quotes from at least three reputable dealers. To obtain the name of a local dealer, call or write to: Professional Numismatists Guild, Robert Brueggeman, 3950 Concordia Lane, Fallbrook, Calif. 92028, or call 760-728-1300.
When contacting a dealer, your child should be sure to ask for the "market," or the buying and selling, price, of whatever bullion he's interested in. Then if he wants to sell his coins, he'll know what he can get for them.
Make sure your child also asks about commissions, shipping charges and other fees. These charges should add up to about 5 percent of the value of a 1-ounce coin. You and your child also might want to consider renting a safe-deposit box or installing a home safe to keep the coins secure. Precious Metal Stocks
Investing in precious metal stocks -- shares in a publicly traded mining company -- might be more volatile but could be a more profitable investment than gold bullion. Keep in mind that mining share prices tend to swing more widely than the price of the metal they dig up. That's because their share prices also are influenced by fluctuations of the stock market and the economy and, of course, by how the mining company is running its affairs. Precious Metal Mutual Funds
A more conservative way to invest in mining stocks is to buy shares in one of several dozen precious metal mutual funds. The minimum investment is typically $1,000. These funds invest in mining stocks, and their share prices tend to fluctuate more wildly than the actual price of gold because these funds often own shares in more than 20 mining companies. Yet, investing in one of the funds is safer than choosing just one or two good stocks.
As with any mutual fund, precious metal funds are managed by professionals. Check the Value Line Mutual Fund Survey at your local library to compare the return and investment styles of most gold funds.
Gold certainly isn't my favorite investment for children. Yet your child should know about gold's place in history and in the economy. And someday, he might want to buy it. Savvy About Gold
It is thought that approximately one-third of the gold jewelry sold in this country is marked with a higher karat than it deserves. Many people, therefore, are paying far more for their jewelry than they should. If a 10k piece of jewelry is marked as 14k, it will then be priced at more than twice its real worth.
To avoid being fleeced, teach your child to make sure gold jewelry is stamped with a trademark as well as a karat mark. And make sure your child buys jewelry only from a reputable jeweler.
After your child buys a piece, you might have it appraised for its gold content. If your child has been swindled, return to the jeweler, with the appraiser's report, and ask for your money back. ASK NEALE Dear Neale:
We just adopted a child, and a friend said that there is a tax break for adoptions. How do I find out about it? NEW PARENTS Los Angeles
There is a $5,000 per child tax credit for expenses related to adopting a child. An accountant can explain these and other adoption-related benefits. Neale S. Godfrey, former bank president, is an expert on family finance. Send questions to: Ask Neale, Associated Press, 50 Rockefeller Plaza, New York, N.Y. 10020-1666.