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You know that retirement is likely only going to be possible if you save up for it. If you've already started investing for retirement, then you might have a lot in stocks, bonds, and funds, but you might also be regularly told that you should look into a gold IRA.
It can be a good move, but you need to know why, as you should only make moves because they're good for you.
Also known as a precious metal IRA, a gold IRA is a form of individual retirement account. That means that you can use pre-tax income to make contributions and watch your assets grow in the account without getting taxed until you make withdrawals.
You can also do a rollover from previous retirement accounts to fund your gold IRA. Those are benefits to most IRAs, however.
What benefits does gold IRA investing have to offer you? The four biggest ones include diversification, opportunity, wealth preservation, and personal control.
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Diversify Your Assets with a Gold IRA
As mentioned already, your retirement investments and savings have probably concentrated on stocks, bonds, and funds, be they mutual funds, index funds, or ETFs.
That's a good start since stocks and equities can contribute substantial growth over time. However, diversification should happen at some point.
Stocks, particularly growth stocks and value stocks, can fuel the growth of a portfolio earlier in life, but you want your portfolio to start stabilizing over time. As you draw closer to retirement, reliable returns get to be more important.
More conservative bonds can do this, as can dividend stocks. However, the best way to smooth a lot of volatility out of your overall portfolio is to diversify your assets into different classes.
This is especially true if you can move into alternative assets that move quite differently than stocks and bonds. That's something that gold and other precious metals certainly do.
There is quite a bit of diversification you can do within stock investments, but that's not enough. It does mean that growing sectors can offset sectors in a slump or downturn, but your portfolio will suffer if the whole market has a downturn.
Millions of investors getting close to retirement found this out the hard way in 2008. Those closing in on retirement then who included sufficient exposure to gold and precious metals had tangible assets.
The intrinsic value of those assets gave their portfolio enough solid ground that they were able to wait for the markets to rebound a few years later and recover most or even all of their portfolio value.
Investors without precious metals often never fully recovered, so they either delayed retirement or had to scale down their quality of life.
Paper-based assets, ranging from stocks and bonds to fund shares and even fiat currency, are always under a barrage of threats.
Government debt load, international tensions, domestic political crises, quantitative easing, inflation, and the weakening American dollar all threaten to devalue related asset classes.
Gold isn't as directly impacted and can be a cornerstone of portfolio stability when it seems like the rest of the world is losing its mind.
Diversifying into gold and precious metals is a smart move for your overall portfolio, but you might also want to diversify even within precious metals. That might also mean investing in silver, platinum, and palladium.
You can also look into various coin types that might have benefits when you hold them for the short, medium, and long term.
Take Advantage of Opportunity
Gold is valuable. It's cherished by many collectors and investors now, but it's also been sought after for thousands of years. The value of actual coins and paper money was based on the gold standard for a long time.
While the value of gold does rise and fall in short-term intervals, it historically goes up over longer periods. That's what retirement investing happens to be, saving over a long time.
That makes it a natural fit for such investing because it can help you grow your retirement portfolio when you buy and hold. That's the core concept behind a gold IRA. You create and fund an account, but you don't buy gold coins and bullion.
A broker does that for you, and then a custodian arranges for it to be stored safely in an IRS-approved vault. Once you turn 59 1/2, you can start taking withdrawals and distributions.
This is when you can assume personal ownership over the metals if you want. However, you might also be able to sell them back at the possibly higher market values of the time and cash out.
Preserve the Value of Your Hard Earned Wealth
Personal investors aren't the only ones using gold or precious metal assets as a haven. Governments and large institutions do it, too. Paper assets can drop in value quite a bit in just one day, and they might even be devalued at certain points.
Precious metals can never have their value plummet to zero. As a result, neither can a precious metal IRA. There's always some intrinsic value to gold and other precious metals.
You might always have exposure to the stock market in your retirement portfolio. However, knowing that some of it are represented by actual physical coins, bars, and bullion in a secure vault can give you peace of mind.
It can also give you a great hedge against inflation and market turmoil. When the spending power of fiat currency degrades over time, be it slowly over the years or quickly over just a few months, gold retains its value quite well.
Inflationary periods are when gold is often at its zenith. Save for retirement long enough, and you might just move through several periods of inflation.
Personal Control of Your Finances
A gold IRA isn't just an individual retirement account. It's a self-directed version. They're also sometimes known as SDIRAs due to this.
The self-directed nature of it means that you get to make just about every decision there is inside the account. No account or fund manager makes the calls for you. Every choice is yours to make.
You get to start with how many account assets you put into your account. Annual contribution limits are the same as for mainstream IRAs, but you can do whatever you want within those limits. You can also choose how much to do a rollover for.
Allocation choices are also your decision. You can decide between many different gold coins, bars, and bullion. You might even choose to allocate some of your assets to other permitted precious metals.
Redistributions are another choice you can make from time to time. While the assets must remain in your tax-sheltered account, you can buy and sell for other metals.
You can even just leave cash in the account until there is something else that you want to buy. You choose which broker you want to deal with. You pick the depository where your metals will be stored. You pick between intermingled or segregated storage.
When the time comes to take distributions, you can choose between your metals being shipped to you or selling them off for cash funds. These choices are all yours to make, and they give you the ultimate investment control.
Fortunately, most brokers will have experienced industry professionals to guide you in all of these choices.
What Precious Metals Should You Invest in with Your Gold IRA?
Gold is the first choice for your gold IRA, but you might be able to include other metals. Start with gold, however, considering its already high value and propensity for growth. The value of gold goes up for many reasons.
For starters, the supply of it is limited, and easily mined reserves are not being discovered at the rate they once were. Gold isn't just driven in value by collectors either, as some cultures cherish gold.
The Chinese have a tradition of owning gold as a symbol or attraction point for wealth, and the global prices of gold tend to peak every October when India has its wedding season, where gold jewelry is a common component of marriage celebrations.
Silver is another precious metal you might invest in because the prices are lower than gold, so it's more attainable to smaller investors looking for a low entry point into this sector.
Interestingly, the growth rate of silver values in recent decades has often outpaced gold.
Silver is more in tune with stock markets regarding pricing, however, so market downturns might suppress values of this metal to some degree that won't happen to gold.
Platinum is another precious metal you can invest in with a solid correlation to industrial demand, which can both fuel and hurt its prices at times. However, it's 15 times more scarce than gold, nor are there any known stockpiles.
This makes a future rise in values likely, although price volatility will also be considerable.
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I started BMOGAM Viewpoints as a way to compile all my views on investing in one place. I own my home, have some real estate, and own a few stocks like most people, but what really drives my interest in investing is I have a strong love of precious metals, especially gold.
