Gold has been used as ornaments and a depository of value from time immemorial. This is why many people are so enamoured with the yellow metal, either as jewellery or as an investment. While gold as an ornament glitters, the yellow metals have a long history as a legal tender in different parts of the world, and only started losing some of its influence when the United States Federal Reserve removed the gold standard from the American monetary system.
Here are some reasons why investing a part of your IRA is a smart move:
Gold Retains Its Value
From time immemorial, gold has continued to be a valuable product sought by the rich and poor. While its price can fluctuate, gold still bounces back to hold its value. This is why many people prefer to hold a part of their wealth in the yellow metal because it provides a peace of mind no bank can ever guarantee in times of trouble.
Inflation
Historically, gold has been one of the best hedges against inflation as it tends to increase in value as the cost of living is on the increase. During inflation years, investors have witnessed the price of gold moving up while the stock markets are crashing.
As an investment, the best reason for including gold in your IRA is because it can serve as a hedge against inflation and negatively correlated to the stock market. This provides diversification in the portfolio, which is a wise investment decision because holding all your investments in one type of asset or market is risky. For best performance, it’s advisable to hold different types of investments.
During bullish runs at the stock market, gold may not perform well. But when the stock prices are in a free-fall, investors start flocking back to gold. At times of turbulence in the stock market, assets that do not correlate with the stock market can help stabilize the portfolio, and gold is a great investment choice.
The lessons of the stock market crashes of 2008 and 2009 have taught many investors to diversify their portfolios. Gold is a proven investment that provides something to fall back on when the stocks go haywire.
Fear Commodity
During times of geopolitical upheavals, the value of gold doesn’t take a nosedive like paper currency and stocks. Gold retains its value in time of crises, and this is why people rush to invest in gold during periods of economic and political instability, resulting in an increase in the value of the precious metal.
Gold can be an insurance policy in times of economic or political instability. For Andrew Carrillo, a financial planner with Barnett Capital advisors, the biggest risk faced by investors is not the fear of running out of money. Rather, it is to own money with no purchasing power. Most investors who favor gold are driven by this fear of a day when their paper money will lose its purchasing power, and so they hold a percentage of their wealth in the yellow metal, in preparation for the cataclysmic day when the value of fiat money will be wiped out overnight. As they say, it better to be safe than sorry.
The above are some reasons why owning gold in your IRA may be the best investment you can make, depending on how your portfolio invests in the yellow metal. This is because the liquidation of the gold would be taxed as a collectable at 28 per cent in a taxable account, but the tax-deferred IRA protects you from this huge tax. It all depends on how you invest in gold with your IRA.
Investing In Gold
An ETF or mutual fund is the easiest way for most investors to buy gold. Experts recommend investing in liquid gold instead of physical gold because this makes it easier to flip your investment in the yellow metal.
But there are many other ways of investing in gold. Investors are allowed to buy gold coins, bars, and bullion. The IRS has strict regulations regarding the types of gold that can be included in an IRA. For a gold product to be allowed in the IRA account, it must be 24 karat gold or 99.9 per cent pure. Only the American Eagle coin, a 22 karat gold coin is the exemption to this purity test. Some gold products allowed in the IRA account include 24 karat gold coins minted by the Treasury Department and a select few from other governments and private mints such as the:
- Austrian Philharmonic,
- Canadian Maple Leaf Gold Coin,
- The British Gold Britannia Coins,
- American Gold Buffalo Coins,
- South African Gold Krugerrand Coins,
- Chinese Gold Panda Coins, and
- Gold Bullion Bars of minimum purify from select mints are also allowed as investments in the IRA portfolio.
You can also invest in gold mining companies in return for dividends, but these are usually affected by the politics of the countries where the mines are located. Also, the IRA doesn’t place any restrictions on investing your IRA funds in gold Mutual funds well as gold-oriented ETFs. Investing in gold this way provides you with a professionally managed asset that will add value to your retirement account.
Investors who intend to keep gold in an IRA need a custodian that provides an IRA account which supports gold. The custodian will be in charge of investing in gold on behalf of gold IRA account holders. Investors can instruct the custodian to purchase a specific amount of gold, and this will be kept in a third-party safe deposit box sanctioned by the IRA.
Alternatively, a system which is known as the checkbook control model of self-directed IRAs allows the investor to buy the gold and keep it in a safe deposit box. If you plan to keep the gold in your IRA and a bank, you need first to open an LLC or limited liability corporation. But the custodian of the self-directed IRA account will handle all the process of setting up the LLC. Additionally, you also need to open a checking account for the IRA LLC to make transactions. You will also need to open a safe deposit box under the name of your IRA LLC if you want to keep the gold privately. All these accounts and LLC processing can set you back by as much as $1300 to $1700 depending on the custodian.
The increased cost makes owning a self-directed IRA more expensive than a regular IRA through a credit union, brokerage, bank, or other financial institution. However, the diversification of portfolio offers some protection against the volatility of currency money in times of economic turbulence, which makes the added cost a worthy investment.
Gold is becoming a popular investment choice in IRAs because it helps to diversify the portfolio and provides a hedge against inflation. But care must be taken when investing in gold because it can also be highly volatile. Make sure to do your homework before investing in gold or any other asset, and don’t put all your funds in one sector.
Our personal recommendation to safeguard your future with gold is to contact Regal Assets, The #1 Rated Gold Investment Company 7 years in a row, Click Here To Request A FREE Gold Investors Kit.
