More and more Americans are taking advantage of bargain gold prices by adding the yellow metal to their retirement portfolios. Is a self-directed precious metals IRA the right move for you? Weighing the pros and cons of a gold IRA can help with this important investment decision.
What Is a Gold IRA Account?
A gold IRA (also called a precious metals IRA) is a type of self-directed Individual Retirement Account (IRA). The key difference between a traditional IRA and a self-directed IRA is the degree of investment freedom offered.
While the traditional option is limited to stocks, bonds, and cash, its newer counterpart allows for the inclusion of alternative investments, such as real estate and precious metals: gold, silver, platinum, and palladium. Learn more about “How a Precious Metals IRA Works?”
What Are the Pros and Cons of a Gold-Backed IRA?
As with any investment, there are benefits and drawbacks to an IRA containing gold, as well as other precious metals. Understanding them can help you make an informed investment decision.
Pros of a Gold IRA
Similar to a traditional individual retirement account, a gold IRA offers tax incentives—with the added bonus of protecting those savings through portfolio diversification. Read more in “The Win-Win Combo: Gold and IRAs.”
While the IRS has rules on which types of precious metals products you can buy, a gold IRA still gives you greater freedom and control than a standard individual retirement account. You can choose between gold American Eagles, silver Canadian Maple leafs, and many more coins and bars. See the full list of IRA approved precious metals.
A gold IRA enables you to leverage the market by buying low and selling high. If gold prices are set to dip, you can sell your coins and bars to avoid a loss on your investment. Simply hold the proceeds in a money market fund until the opportune time to buy again. Learn more in “Take Control of Your Retirement Savings with a Self-Directed Precious Metals IRA.”
Gold has served as a store of value and a unit of exchange since the dawn of civilization. The yellow metal’s ability to withstand the test of time makes it a proven safe haven investment. Its negative correlation to stocks, bonds, and the dollar make gold the perfect portfolio diversification tool. Gold in your retirement portfolio can help minimize the risks of inflation and financial, political, or economic crisis.
Sure, lauding gold’s performance over the last 5,000 years can seem an abstract form of proof to many investors. But the last financial crisis was just 10 years ago. And anyone who lost their retirement savings during the Great Recession can attest to how real—and painful—the consequences of betting everything on the stock market can be.
Cons of a Gold IRA
No Interest, Dividends, or Yields:
Unlike paper-backed assets, gold does not pay interest, dividends, or yields. However, those perks of stocks and bonds come with risks: the small gains from interest—and even your entire savings—can be lost in an instant. It’s happened before to older Americans, and it can happen again.
Fees and Expenses:
There may be certain expenses to setting up and holding precious metals in your retirement account. These fees may include: a one-time initiation fee, annual custodian fees, and storage fees. However, you’ll encounter the first two expenses with a traditional IRA. Also, fees vary depending on the Trust company you choose.
You’ll also have the benefit of entering a somewhat mature market for this type of investment vehicle. In the years between 1997 when Congress created the gold IRA and the financial crisis in 2008, this type of account was fairly novel, which meant fewer firms were offering it, and the expense was steeper than a traditional IRA. During the Great Recession, demand for gold IRAs skyrocketed—along with gold prices. The process was streamlined as a growing number of firms started offering precious metals IRAs, and the cost decreased significantly.
Theft and Fraud:
Fraud and theft can be risks of investing in physical gold and silver. But depositories that qualify to hold precious metals for IRA accounts must be insured. Then there is the risk of custodians stealing from their customers, but, again, this can be mitigated by hiring a custodian that insures every financial transaction.
Why Start a Gold IRA Now?
There’s never been a better time to start a gold IRA. The stock market recently celebrated 3,543 days of uninterrupted gains, making this the longest bull run in American history. With their strong negative correlation to equities and the dollar, gold prices have pulled back since hitting $1,349 last January. With the stock market set to correct and the dollar predicted to fall, we could see a colossal reversal in gold prices. Maybe even $1,900 again!
One sure way to know which direction the markets are moving is to watch Wall Street heavyweights and billionaire investors. Lately, they’ve been buying gold. Read more in “Smart Money Buying Up Physical Precious Metals, Sale Skyrocket 126%.”