Investing in a gold IRA is a lot like turning your retirement fund into solid future. With mid year 2017 gold prices sitting at $1,320 an ounce, it makes sense that switching that investment from paper assets like stocks, bonds and cash might be a better idea. This is especially true when you understand that this is an increase from $1,245.51 since March.
Gold IRA vs. Other Qualified Plans
Unlike traditional IRAs or 401(k) retirement plans that brokerage firms or banks offer, you get to make the choice as to what your investment hinges on with a Gold IRA. You get to select:
- Type of eligible precious metals you want in your portfolio;
- Form of metals you prefer – bars, bullion or even coins.
You are in charge of what your investment looks like and that is very important to baby boomers.
With a gold IRA you back your investment by physical assets such as gold, silver, palladium and platinum. In 1997 Congress created the rule that allows this and the former director of the United States Mint, Edmund C. Moy was there to oversee the world’s largest production of coins made from gold and silver.
Before precious metals can qualify for being held in IRAs they should meet certain criteria:
- These metals cannot be held by the IRA owner themselves, but rather must remain in the possession of the IRA trustee and stored in a specially approved depository.
- It must meet specific fineness standards.
- It is not allowed to keep bullion or bars in a home closet or safe, nor can you place them in a safety deposit box at a bank for safe keeping.
With Roth IRAs and other traditional IRAs your money is invested in mutual funds or stocks and bonds and that makes them vulnerable to the adverse affects of inflation. Since the price of gold typically increases over time, including a gold IRA in your retirement plan is like having an insurance policy for your portfolio. The smart choice for investing in a retirement fund is to approach it in a balanced manner to reduce the risks.
Robust Growth Of Gold IRAs
In the past investing in precious metals backed IRAs was not as popular as it is today. It had to do with the complicated process most investors had to deal with when selecting IRA provider that will accept gold as investment option. It was necessary for those interested to find a custodian or trustee in addition to an approved depository for this to work. For this reason, only persistent and experienced investors were the majority of users.
In the aftermath of the 2008 financial crisis that caused what some call the Great Recession, gold IRAs gained more attention with the general public. The resulting effect was that a great number of companies sprang up to handle the increasing amount of precious metal sales. This made transactions simpler for anyone interested in this form of investing in a one-stop shopping sort of way. Robust growth of Self-Directed IRAs was the natural result.
World and economic news also had an impact on the rise of interest in the gold IRA. Interest also increased due to the potential impact of inflation caused by stimulus programs implemented by the Federal Reserve. Another factor had to do with geopolitical risks.
What to Look For in a Custodian of a Gold IRA:
- Cost Transparency. Ask as many questions as necessary to find out about what it will cost so that there are no surprises or hidden fees.
- Company Reputation and Record of Performance. The Business Consumer Alliance and the Better Business Bureau are great places to start when checking the reliability and track record of an investment company. You should also check actual consumer reviews and complaints filed against various companies. A company that takes an educational approach without pushing for a sale might be a good choice, but it is always important to perform due diligence regardless how good it may sound.
- Flexible. Investor goals and needs vary, and there is no such thing as a one-size-fits-all investment strategy. You want a company that caters to your individual requirements without lumping you in with all the rest of their clients.
- Credentials and Qualifications. Any company with which you invest your hard earned money and financial future should be one that has taken the time to acquire all the needed registrations and licenses and that is insured and bonded for your protection. Don’t forget to request a look at proof of these along with other important information before entrusting them with your capital.
Specific Risks To Owning Gold
Any time you invest for your future, you should be aware that along with the rewards there are also some risks. This includes a gold IRA just like it does other investment activity. No one can predict with any certainty what the future holds. Although precious metals have always been viewed as a relatively stable product, its price can move up or down according to the markets. Nevertheless, it is one of the few products that holds its value over the long run.
In spite of the risks involved with any investment, gold has a uniqueness that sets it apart. Its 5,000 year history reflects the fact that it has never been worthless and bounces back when prices do go down. This is unlike many other products that can drop to zero value under the right circumstances. Examples of this are defaulted bonds in Argentina, and big cuts in Greece.
There are some risks that are inherent with holding any physical asset such as precious metals. A thief can break into any depository and steal anything they can find and pick up. Nevertheless, depositories must be insured if they are going to qualify as a repository for gold IRAs. That means your investment is protected up to the value stated in writing by the custodian.
In rare instances, custodians might be unscrupulous and steal from the accounts of clients that trust them with their investments by selling precious metals that are not in their possession or do not exist at all. The mitigate such risks; it is vital that you choose custodians that can prove their financial transactions are insured.
How Much Gold Should You Have In Your Portfolio?
Typical investors choose a variety of products to include in their investment strategies. The amount of gold varies from one investor to another with one investing lightly, one being a little more moderate in the amount of funds allocated to gold and another might be heavily invested in this precious metal.
To get a better feeling for how much gold you should have in your own portfolio, here is what it looks like to be lightly, moderately and heavily invested in gold and why some people prefer one over the other.
A person that is lightly invested in gold means that this investor has allocated between 5% and 10% of their investments in their gold IRA. This is someone that has confidence in our economic future, but would like some assurance that their financial future is secure. Investors such as this should also allocate small amounts of their capital expenditures to currencies and commodities of countries that are stable financially.
Moderate gold allocation ranges from 15% to 25% of your assets invested in gold. The majority of today’s investors fit into this investment category and that is due to the outlook of our current political and economic climate. They generally have a good understanding of the various risks that exist and are looking for a method of offsetting potential losses caused by inflation or financial crisis.
An investment of 30% to 50% in gold is considered to be heavy. Someone that has that much money invested in a gold IRA generally believes that the countries debt, rising inflation, money printing by the Federal Reserve and the falling value of the U.S. dollar is a precursor to eventual financial ruin. They feel that gold will ensure their financial future.
For investors it is crucial with this much interest in precious metals to remain ever vigilant with yearly reallocation since they need to be ready to take profits from gold off the table if they notice the market in runaway mode. We suggest to keep a watchful eye on the whole portfolio, instead of focusing on individual volatile assets. Each year, investors should take time to re-balance allocations and reduce risk.
The best choice is to select an investment strategy that fits in with your long-term goals based on how much risk you are willing to take. A portfolio that is evaluated and re-balanced each year will create more stability in the exposure to risk.
Rolling over a traditional IRA into a gold IRA can actually help you reach your long-term retirement goals because the rewards can be greater. If you are looking for a way turn your investments into gold, speak with a reputable financial advisor and let help you determine what is best for you.