What do you get by saving in a retirement account (IRA) for the gold investment? You turn part of your retirement nest egg into money, literally. That said, is it the right move for you to add a gold IRA into your portfolio? Not all IRA accounts require investment in gold, but this article will help you understand what to look for in your IRA to see if it will allow you to create a golden retirement egg.
The Price of Gold
Looking at historical gold prices, you’ll find that gold prices shot up sharply in the 2000s and seem to peak in summer 2011. Looking back in the late 1970s something similar happened. Gold spent the next twenty years falling in value, following the price increase in the’ 70s.
After the recent drastic gold price rises, it’s entirely possible that it will languish again for a considerable length of time. Your gold investment would not generate any interest or dividends while languishing.
You need an investment in retirement that either produces current income or is reasonably expected to appreciate the value in order to be able to sell it in the future and spend it on personal use.
Gold as An Inflation Hedge
Most gold advocates say it’s a successful hedge against rising prices. However, the facts don’t support this. Gold is not a hedge against inflation, but a stronger hedge against a crisis. Often, gold prices tend to rise in times of crisis. But that is not necessarily the case during high-inflation periods.
A lot of people are still worried about a recession because of the Great Recession of 2008. The result is, people are buying more gold because it makes them feel financially more comfortable. It serves as a safety net and a financially sound option.
This is where gold as a retirement option comes in. Keep reading to learn more about Gold IRAs and why they’re necessary for your financial security.
What Are Gold IRAs?
A gold IRA is an investment retirement account (IRA) specie (pun intended) that allows the investor to own physical gold, silver, platinum, and palladium instead of more common assets — such as cash, securities, and bonds — to which standard IRAs are limited.
How To Set Up Your Gold IRA
To bring IRA funds into gold, you must create a self-directed IRA, a kind of IRA that the investor personally controls and is permitted to own a wider range of investment products than other IRAs. You need a broker to buy the gold for a gold IRA, and a custodian to establish and manage the account. The broker/custodian you choose will store the actual bullion that you own.
You can read reviews of gold IRA companies on this page: https://www.irainvesting.com/gold-ira-companies/
Custodians are typically banks, investment companies, credit unions, brokerage firms or savings and loan associations that have been licensed by federal and/or state agencies to provide asset-guarantee services to individual investors and financial advisors. They don’t recommend choosing metals dealers for their IRA clients. This choice comes under the responsibility of the investor. However, this process can become easy because existing custodians have relationships across the country with several hundred dealers, and may be willing to share that list.
Choosing which business to use is difficult, as it is a specialized activity not commonly provided by major brokerage firms. Here are some factors to consider when you make this choice:
- Transparency: Understanding all of your costs right up front can prevent nasty surprises, like hidden fees after you spend
- Track record: Search for a business that has an excellent reputation from independent third parties, such as the Better Business Bureau or the Business Consumer Alliance.
- Flexibility: The needs and goals of each investor are different, so we recommend selecting a company that will work for you, rather than a one-size-fits-all strategy.
- Qualifications: To protect your money, you should only work with a business that has all the necessary and needed licenses, permits, insurance and bonds. Request that those licenses and other information be verified.
There are some special costs you will incur when you decide to invest in a Gold IRA. These are:
- The Seller’s Fee (Discount): Depending on whether you want gold bullion, coins, proofs, etc., while gold has a going rate, there are markups you will incur. The discount, although varying depending on the retailer, is a one-time fee.
- Retirement Account Setup: This is a one-time fee to build your new IRA account. This also differs from institution to institution, but it may be more than the normal setup fee, as not every financial services firm manages gold IRAs.
- Custodian Fees: Again, while you would be paying these annual costs (as well as any related asset or transaction fees) with all IRAs, they may be higher for this kind of account, particularly if you have to go to a financial institution other than the one holding your other accounts.
- Storage fees: The gold must be stored by a reputable storage facility which charges storage fees.
- Cash-Out Costs: If you want to close a gold IRA by selling the gold to a third party dealer, the dealer will want to pay less than what the open market can get for it. Many IRA firms will promise to buy the gold back from you at current wholesale rates, but by closing the account you could still lose money, something that typically doesn’t happen when you open and close daily IRAs.
The Bottom Line
Usually, Gold IRAs are known as “alternative investments,” meaning that they are not listed on a public exchange and require special expertise to be priced. Although gold has the potential for a high yield, its shimmer makes it easy to be blinded. Gold prices can suddenly plummet. If gold is rising, you also have to decide if you’d buy at — or near — the top of the market if you’re buying at that point. Waiting could be more profitable.
If you are considering an IRA for gold, consult with a financial advisor to determine how the metal fits your portfolio’s overall goals. Generally speaking, putting all your eggs in one asset basket is never a good idea. Play around with your investments but definitely consider using gold in your retirement as it will only help.