How Much Gold Should I Put in My Retirement Account?

As more and more investors get serious about opening gold and silver backed IRA accounts, one of the obvious questions they inevitably ask is how much gold should they add to their portfolios?

It’s a question of balance, of course, and one that involves looking at several different issues to answer effectively. With that in mind, let’s answer the question of how much gold you should have, and what other questions you should ask yourself as you make that decision.

A Question of Balance

The first issue you need to tackle to decide how much gold you need is to look at the benefits it provides. The biggest one is that it can act as a hedge against inflation, which certainly makes it a good investment at the moment.

As an investment, the value of gold tends to hold up well over time, so if you’re looking for stability, that also makes gold a solid addition. The price of gold also tends to move opposite to the dollar, so if the value of the dollar is falling, chances are you’re making gains with your gold investment. Gold will also gain value if the dollar becomes stable, but the investment gains likely won’t be nearly as high.

Another reason to add gold as a hedge is psychological. Usually, when the market goes down gold tends to go up, so gold can also be a catch against chaotic market events and short-term turmoil.

One of the primary myths about the amount of gold you should have in your portfolio is what we’ll call the accumulation factor. Investors who are constantly wary of economic disasters and collapse often believe that accumulating gold and gold bullion will save them if there is a complete market collapse.

This is nonsense, basically. While gold is historically valuable and prized around the world, it would have little value if an economic apocalypse does occur. Without the presence of markets to determine the value of gold and paper currency, the trading value of gold would be haphazard at best.

Finally, there are those who see the move to a gold standard as inevitable. Once again, these investors tend toward doom and gloom, and they see the solidity and historical value of gold as a form of salvation.

Unfortunately for them, the chances of a move to a gold standard are something along the lines of slim and none. First off, the logistics of such a shift would be massive, and they’d likely cause a series of separate economic calamities. There’s so much paper money in circulation that it would take a complete collapse to make it feasible, and despite the turmoil of the markets in the last couple of years, we’re nowhere close to that kind of outcome.

The Right Gold Percentage

So how much gold should you have in your portfolio? Most financial experts recommend 5-10 percent, and you should track the performance of your gold investment to make sure it’s giving you the stability you need.

There are exceptions, though. Many conservative investors like the idea of having gold be more than 10 percent of their portfolio, and they’re fine with not making much during boom markets when some of the shine comes off of gold as an ongoing investment.

Many of these investors know the gold market quite well, and they’re familiar with the players. They know how to get the most out of their gold investments, and they’re more than happy to be the tortoise in the financial version of the tortoise vs the hare, especially given the long-term outcome of that particular race.

Another question that comes up when dealing with the amount of gold to have is the issue of gold versus silver. While some investors use technical analysis to determine which precious metal is a better investment, most of this decision comes down to preference.

For those with a significant interest in questions like this, one useful strategy is to look into the mining companies or the metals sector ETFs. This peek behind the curtain can give you a better idea of the specific market forces that drive the price of gold, silver, platinum and palladium.

Finally, let’s consider the issue of limits on how much gold you can buy. Simply put, there are none. There are 187,000 tons of metric gold out there in the world, and they’re complemented by another 57,000 metric tons of underground reserves.

In theory you could buy it all if you accumulate enough money, and you’ll likely have a very interesting and perhaps frustrating life journey if you decide such a goal is worth the effort.