Is a Gold Investment Right For You

Investments of every type create a risk for clients. How investors devise their strategy will determine how that risk ultimately plays out. When saving for retirement, diversifying the asset classes keeps the risk widespread. Clients can do that in numerous ways based on their particular wealth goals.

One of those options is physical gold held in an IRA or individual Retirement Account, a gold IRA. An investor would need to source these through a gold firm,, one offering years in the industry, reliability, and trustworthiness. These are not necessarily always the right choice for everyone. Let’s educate on the precious metal to make that decision somewhat easier.

What to Know About Gold Investment?

A strategy utilizing diversified asset classes like a gold IRA intends that each class will correlate uniquely in the markets. That means while one asset is subpar for a period, another is succeeding, and the opposite will be true down the road. 

The suggestion when is gold a good investment as an alternative asset is its potential for holding steady during a market crash while equities perform poorly. In some instances, gold could rise in value in tumultuous times, but that’s not always the case.

The metal boasts of being a “store of value,” in terms of when the US dollar falls drastically in value, investors have the option of bartering with the physical in exchange for goods or selling it to obtain other currencies.

Whether a gold individual retirement account or gold IRA is suitable for your investment strategy depends on what you hope to achieve in your financial future. While you can hold the physical commodity in a “tax-advantaged” IRA, the owner cannot possess it until reaching the age of 59.5. 

A specialty custodian would hold the physical metal in a depository creating challenges if the economy were to “collapse” and it became necessary to utilize the product. Taking it out early results in tax consequences and penalties. 

What Are the Advantages Of Owning Gold

Owning gold in an individual retirement account or IRA isn’t necessarily good or bad. It depends on your specific financial goals and whether the precious metal fits your retirement strategy. A primary consideration is understanding that physical gold in an IRA can’t be taken into physical possession until retirement.

A specialty custodial service holds precious metals in secure, insured depository facilities until that time. These entities are IRS-approved, non-bank firms specializing in precious metals held in self-directed IRAs with the purpose of administering and managing the accounts. 

While some investors find gold IRAs the ideal alternative investment for diversifying a portfolio heavy in paper, the physical commodity won’t be suitable for everyone. While it has advantages, the metal is not without its own risk and volatility. Go here for a comparison between gold IRA vs. physical gold. Let’s look at some.
  • Pros

Here are a few of the pros associated with a gold IRA.

  1. The tax incentives

Conventional IRAs offer tax advantages in traditional and Roth IRAs. A gold IRA offers these same incentives. An investor can obtain a gold “traditional” IRA or a gold “Roth” IRA that works essentially the same way as the conventional counterpart. With a traditional account, this means tax-free earnings and tax-deductible contributions until retirement. 

When making withdrawals after retirement, taxes are taken. With a Roth, taxes incur until retirement, and then a retiree can enjoy the fruits of their labor tax-free.

2. Savings for the future

The suggestion is that gold is an excellent long-term retirement savings or a “buy-and-hold” investment opportunity. Some investors have exceptional trust in the history of the precious metal and find it will be a valuable resource for their financial future.

As such, these investors keep a portion of their portfolio in the physical commodity. The recommendation is to avoid having a precious metal-heavy strategy or a portfolio with gold as the primary asset class. 

Instead, it’s suggested that if you want to include gold or other precious metals among a diverse group of holdings, these equate to roughly 10-15 % of a “robust” strategy.

3. The self-directed IRA

A gold IRA falls under the category of a self-directed individual retirement account. A self-directed account can hold varied alternative investments aside from precious metals, including real estate. The primary thing an investor should be aware of with these accounts is the responsibility that comes with them.

As the owner, any financial or investment decisions fall to you. The custodial service, the precious metals dealer, and the IRS won’t provide investment guidance or tell you where to put your funds. The IRS does, however, have stringent guidelines that need to be followed.

Specific gold, silver, palladium, and platinum bullion (coins, bars, rounds) are available for investment with a particular weight, purity. If an investor steps outside these guidelines to options that don’t meet the criteria, they will face tax repercussions and penalties grossly affecting their retirement wealth.

There are also contribution limits each year, similar to conventional IRAs and age based.
  • Cons

A gold IRA has risks and drawbacks in the same way as with all investments.

4. The price needs to rise

With gold, there are no earnings like dividends or interest like you would see with equities or paper assets. The metal needs to appreciate to see value with the physical commodity.

It’s further indicated that when gold is bought or sold, the market price you see is not often the price you will receive. In most cases, dealers will pose a fee that takes the price above the market value when selling and will presume to get “a cut” to take advantage of their business as a place to sell your product.

Final Thought

Determining your financial goals is a priority when considering an investment like a gold IRA to diversify your retirement strategy. The precious metal can benefit or be a detriment based on your circumstances. 

When you do choose to include gold or another metal, it’s wise to keep the assets as a minimal addition, roughly 10%, maybe 15%, if you have an already diverse mix that is relatively stable and functioning well.

Leave a Reply

Your email address will not be published. Required fields are marked *