MicroSectors Gold 3X Leveraged
The SHNY exchange-traded note (ETN) offers investors 3x daily leveraged exposure to the spot price of gold by tracking the SPDR Gold Shares Trust (GLD), which holds physical gold bars. Issued by the Bank of Montreal, SHNY functions as a debt obligation rather than an equity investment, making it suitable primarily for short-term tactical trading strategies.
Due to its leveraged nature, returns on SHNY can diverge significantly from 3 times the daily performance of GLD when held for periods longer than a day. The ETN's NAV is closely tied to the LBMA PM Gold Price, ensuring a close correlation with spot gold prices. However, investors should consider the credit risk associated with the issuing bank as part of their investment decision.
$45.64
Change: ($-0.85) -1.87%Expense Ratio: 0.95%
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Expense Ratios vs Storage Fees
Expense ratios for Exchange-Traded Funds (ETFs) represent the annual costs associated with managing the fund. These costs cover management fees, administrative expenses, and other operational charges. Even though these fees are often small, they can add up over time and reduce the overall returns for investors.
On the flip side, storage fees are the costs associated with keeping physical bullion safe. These fees are usually fixed and provide a predictable expense for investors. Comparing the long-term impact of expense ratios with the fixed storage fees can help investors decide whether to invest in gold ETFs or physical bullion.
Expense Ratio for SHNY
| Years | Net Investment | ETF Fees 0.95% (avg) | OneGold Storage 0.12% (Gold) | Assumes 8% expected return |
|---|---|---|---|---|
| 1 | $15,000 | $95.00 | $12.00 | Initial Investment = $10,000 |
| 2 | $20,000 | $251.80 | $31.91 | Yearly Investment = $5,000 |
| 3 | $25,000 | $479.16 | $60.90 | |
| 4 | $30,000 | $786.81 | $100.29 | |
| 5 | $35,000 | $1,185.57 | $151.56 | |
| 6 | $40,000 | $1,687.40 | $216.33 | |
| 7 | $45,000 | $2,305.58 | $296.43 | |
| 8 | $50,000 | $3,054.77 | $393.90 | |
| 9 | $55,000 | $3,951.20 | $510.97 | |
| 10 | $60,000 | $5,012.83 | $650.14 | |
| 20 | $110,000 | $30,259.23 | $4,043.72 |
When evaluating the SHNY Gold ETF against OneGold, it is essential to assess the related fees and the net investment growth over an extended period. Let’s examine the financial impact across two decades, using an 8% anticipated return, reflecting the historical annual return rate of gold since 1971.
Comparsion of Fees
ETF Fees: The SHNY Gold ETF carries an average fee of approximately 0.95%, leading to significant cumulative costs over time. After twenty years, the total fees accumulated for the ETF would be $30,259.23.
OneGold Storage Fees: In contrast, OneGold has a more economical storage fee structure, set at 0.12% of the gold’s value. Over a twenty-year span, the storage fees for OneGold would total $4,043.72, resulting in a savings of $26,215.51 compared to the SHNY Gold ETF.
Understanding ETF Risks, Taxes, and Hidden Fees
Investors need to recognize the risk of ETF closures, which can compel them to liquidate their holdings at less than ideal times, potentially resulting in financial losses. This makes it essential to thoroughly research the stability and management of an ETF before investing. By evaluating the fund’s historical performance and the management team’s expertise, investors can mitigate these risks and ensure a more secure investment.
In addition to the risk of closure, tax implications and hidden fees associated with ETFs can significantly impact overall returns. Different ETFs have varying tax treatments, which can affect profitability. Fees charged by trading platforms for ETF transactions can also add up over time, reducing investment capital. Understanding these costs and incorporating them into your investment strategy is crucial for making informed decisions and optimizing returns.
Advantages of Holding Real Gold for Liquidity
Holding physical gold offers exceptional liquidity, enabling investors to quickly convert their assets into cash or other tangible items as needed. This is particularly beneficial during periods of economic instability when gold tends to retain its value. Unlike some ETFs that do not provide direct ownership of the underlying gold, holding physical gold ensures immediate access and control over your assets, offering a sense of security.
Furthermore, while some ETFs allow for the redemption of shares for physical gold, the process can be complex and involve stringent conditions. Investors should carefully review these terms to ensure they align with their investment goals. Opting for a transparent vaulted gold option like OneGold provides a straightforward method of accessing your gold holdings, avoiding the complexities associated with ETF redemptions. This approach can be particularly appealing to those who prioritize liquidity and simplicity in their investments.