Should Gold Be In An IRA?
Sunday, September 24th 2023
As individuals work to secure their financial future, an Individual Retirement Account (IRA) is one of the primary tools at their disposal. An IRA is a tax-advantaged account designed to help individuals save for retirement; there are various types such as Traditional, Roth, and Self-Directed IRAs available. Traditional investments like stocks and bonds tend to make up most of an investor’s IRA portfolio while more recently alternative assets like gold have gained widespread attention among investors.
Gold has long been used as an investment, both as a store of value and hedge against inflation (1). Due to its unique properties and ability to preserve purchasing power, many investors are considering adding gold into their IRA portfolios. We will discuss here its potential benefits and drawbacks as well as various ways investors may do this.
Benefits of Incorporating Gold Into an IRA
- Diversification: Gold as part of an IRA provides investors with a means of diversification that could potentially reduce risk in their portfolio. Gold tends to have low correlation with other asset classes; thus, enabling it to help protect investors during times of market turbulence by helping protect price movements independently from those seen with stocks and bonds.
- Gold as an inflation hedge: For decades, investors have used gold as a hedge against inflation. Although paper currency suffers as it loses purchasing power due to inflation, gold’s value remains stable over time. With central banks around the world printing money to respond to economic crises, inflation risks increase significantly – adding gold into an IRA can provide protection from its potentially devastating impact on retirement savings.
- Protection during economic uncertainty: Gold has historically performed exceptionally well during times of economic uncertainty and market instability, such as during 2008’s financial crisis. Indeed, during that time it outshone the broad stock market, providing stability for investors during uncertain markets. By including gold as part of an IRA portfolio during times of market instability it may provide investors with a source of protection during periods of market instability, helping protect wealth while providing retirement security.
- Limited supply: Gold is a scarce natural resource and supply is limited. As demand for it continues to increase, particularly from emerging markets like China and India, its value may increase, making gold investments an appealing way for individuals to tap into this rising global trend and potentially capitalize on its price appreciation potential. An IRA investment offers investors exposure to this growing market trend while potentially offering them exposure through price appreciation potential.
Implications of Including Gold in an IRA
- Storage and custody fees: Holding physical gold within an IRA typically requires that it be held by a qualified custodian at a secure storage facility, who typically charges fees for their services that may exceed those associated with holding stocks and bonds. Furthermore, additional storage fees may apply and further increase the costs of holding gold in an IRA.
- No interest or income: Due to lack of dividends or interest, gold does not produce income in the form of dividends or interest; thus, reducing retirement income streams significantly for investors who rely heavily on their IRA for income during retirement.
- Gold’s liquidity: While gold is an internationally recognized and traded commodity, its less liquid nature may limit how quickly an investor can access his or her retirement funds. Selling physical gold may involve additional steps – transporting it to a dealer for sale or setting up private sales – making the asset less suitable for quick withdrawal. This makes gold less attractive when investing for retirement purposes due to this issue.
How to Incorporate Gold Into an IRA
- Physical gold: One way of investing in physical gold through an IRA is through physical bullion bars or coins, meeting specific purity requirements (typically at.995 fine or higher) and held in an approved storage facility by an approved custodian. Popular options for investing in physical bullion include American Gold Eagles (2), Canadian Maple Leaves and Buffalo Coins – it is crucial when purchasing physical bullion for this use to work with a reputable dealer who sends directly to its custodian for tax efficiency purposes.
- Gold Exchange-Traded Funds (ETFs): Another way of adding gold to an IRA is through investments in gold ETFs, or Exchange Traded Funds. These financial instruments track the price of gold and can be traded like traditional stocks on stock exchanges. Gold ETFs allow investors to gain exposure to its prices without needing to store physical gold – popular examples being SPDR Gold Shares (GLD), iShares Gold Trust (IAU), and Aberdeen Standard Physical Gold Shares ETF (SGOL). Note however that while these provide exposure, they do not grant ownership of physical gold.
- Gold mining stocks: In investing in gold mining stocks is one method to increase exposure to gold within an IRA. Through the purchase of shares in companies that mine, process and sell gold to investors could benefit from the an increase in prices and growth of mining companies. However, investing in these shares could expose investors to company-specific risks, including management decisions, operational issues geopolitical risks that could affect mining operations, among other things.
- Gold mutual funds: Mutual and closed-end gold funds provide another method for diversifying an IRA with gold exposure. These funds invest in a diverse portfolio of gold-related assets, such as physical gold, mining stocks, ETFs or mutual funds that invest in these assets. By investing in such funds, investors gain exposure to gold while also receiving professional management and diversification benefits – two renowned examples being VanEck International Investors Gold Fund (INIVX) and Sprott Physical Gold Trust (PHYS).
Gold can bring many advantages to an IRA portfolio, such as diversification, protection against inflation and help during market crises, while providing diversification benefits. But investors must be wary of potential drawbacks such as storage fees, income generation challenges and even possible illiquidity issues.
An Individual Retirement Account (IRA) allows investors to diversify their gold exposure using various investments, such as physical gold, ETFs, mining stocks or mutual or closed-end funds. Each method offers its own set of advantages and risks; before adding gold exposure into an IRA portfolio.
Decisions on whether or not gold should be added to an IRA are ultimately personal ones that depend on each investor’s particular financial circumstances and objectives for long-term investing. By carefully considering its potential advantages and drawbacks as well as investment options available to them, investors can make an informed decision as to whether it fits within their IRA portfolios or not.
Are you ready to take control?
It’s time to invest in gold to protect your retirement funds. Gold is a great investment for an IRA! Check out our list of the top gold IRA organizations – many of that are currently offering free charges for the first year of new customers.
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