There is a lot of talk about investing in gold with experts disagreeing about gold’s proper place in retirement planning. The key thing to know about, when investing in precious metals, is there is a lot to learn before making a final decision.
How Gold Protects Retirement Funds
You may have heard that investors buy gold as a hedge for retirement accounts, but it’s important to understand how that work. In general, gold has been considered valuable for thousands of years so it has the confidence of world markets.
It also is a great currency accepted globally, so it will work for purchases even if paper currency fails. However, those are not the root reasons why gold works well to protect retirement assets.
Here are some facts about gold and other assets:
- Gold has an inverted relationship with other asset like stocks and paper currency. When stocks are up and paper currency is strong, the price of gold dips. Gold prices rise in bad economies when stocks and paper currency are down in value.
- Gold has an inverted relationship with inflation. Its value rises with high inflation. Low inflation means a reduced value of gold and other precious metals.
- The price of gold has dramatically risen over the past 20 years, jumping 131 percent from 2007 to 2011. The downside it that it drops dramatically too, as it did in 2013 when it lost 28 percent of its value. It dropped again in 2014 to $1,184 an ounce.
The inverted relationship with other assets and inflation is what makes gold a good choice to protect retirement funds in a diversified portfolio. Either your stocks or your gold will be rising in value whether it’s a good economy or a bad economy.
How Gold is Different from Other Assets
There are a couple of differences in gold investments versus other types of investments. The major difference is gold doesn’t do anything. It is an investment because of what it is.
Its value is based on its anticipated value rising while it sits. You see your investment out of it, when you sell it.
Stock investments make money because they are investments into businesses and products that make money. You can reinvest the money made in stocks into other stocks, multiplying your investments. You can collect your dividends without selling your stock.
However, as most know, stocks can lose money also as they did in the Great Depression and in the 2008 Recession. Some can lose value lower than your original purchase price, causing you a net loss. This loss is hard to recoup until the economy improves.
Gold, on the other hand, doesn’t ever lose all its value even in its most dramatic drops. Gold’s value was still more per ounce after its 2013 drop than it was in the 1990s. So, you will never lose money in purchasing gold.
Another difference is how long it takes for your various investments to make money. Stocks, if you buy the right ones, can make money quickly. For instance, those investing in tech companies, like Microsoft, before those companies were well known became rich seemingly overnight.
Gold is a long-term investment. The investment value in gold is to let it sit for 20 or more years before you sell it. Those who bought gold in the 1980s saw their investment double.
The length of time it takes to see a significant rise in gold’s value is one reason why investment experts advise those approaching retirement age to be wary. It makes more sense for younger investors to diversify with gold.
How to Buy Gold
While the commercials make it easy to get started with gold investments, it is a complicated process. That is largely due to IRS regulations. To buy gold that will secure your retirement, you need to understand the rules.
- All or part of an IRA can be transferred to gold investments without an IRS penalty. Commonly called a Gold IRA, this is actually an investment in four precious metals, including gold, silver, platinum, and palladium.
- The precious metals must meet IRS standards to be eligible to be included in an IRA. They must be in coins or bars to qualify.
- You can’t hold them in your personal safe. They must be held in a depository approved by the IRS and managed by an IRA trustee.
How to Work Through the Process
There will be some things you need to do to invest part of your retirement in gold. These are important because they involve IRS and other government regulations. You can’t rush any of these decisions either.
The basic things you will need to do include:
- Establish a self-directed IRA. This type of investment account allows you to select from a larger group of investments, including precious metals. Your retirement broker can help with this.
- Select custodian to hold your gold. Those approved by the government typically include banks, credit unions, brokerage houses and trust companies.
- Pick dealer to buy your gold. Your custodian may have some recommendations, but metal dealers work independently of custodians. Picking one is your responsibility.
There are some things to look for when choosing a custodian and a metal dealer. Make sure they have proper transparency in their fees, a good track record from places like the Business Consumer Alliance or the Better Business Bureau, and proper licensing, insurance and registrations.
Finally, make sure those you hire, have enough flexibility to meet your needs rather than a standard service that doesn’t cater to your specific needs. Always make sure to research gold IRA investment reviews to learn which companies rank the highest and have the best overall customer experience.
Most experts advise not to buy gold as an emotional choice, out of fear of the future. It’s your retirement and it’s important to research all your options before investing.
Investing in gold can be a solid choice to protect your retirement. Using it in a diversified portfolio and understanding it is a long-term investment will put you ahead in the challenge of planning for retirement.
Proper planning will leave you wealthier as you approach retirement and, ultimately, give you peace of mind and a better life.
David Warren is the senior writer and lead researcher at HardStacks. He has been a financial engineer for over 30 years and has been investing in alternative assets since the Great Recession of 2008. He has a true passion for learning about economic cycles and educating others on how to protect and grow their wealth by investing in precious metals, real estate and cryptocurrencies. Follow him on Facebook.