Over the last decade, many investors have experienced significant losses or underwhelming returns in their retirement accounts because of the violent fluctuations in the stock market. Even those investors who allocated capital into cash investments like CDs or savings accounts have failed to realize returns that have maintained pace with inflation.
However, those astute investors who placed capital into gold over the past decade have realized tremendous returns in their portfolio. As central governments print money to stimulate the sluggish global economy, the price of the commodity continues to rise. Investing in gold through your 401(k) or IRA retirement account is a savvy tactic for you to protect and growth your wealth.
Traditionally, gold is sold as commodity, but it can be purchased as numismatic coins as well. Unlike other commodities such as coffee or copper, gold doesn’t have many practical applications. Many investment professionals consider this an advantage for the precious metal to maintain its value because it doesn’t depend on a singular industry or sector of the economy. In addition, the price of gold traditionally rises as the price of other asset classes fall. (Related – The Better Investment – Gold or Silver)
Gold, historically, has been considered a hedge against inflation. As the rate of inflation rises, so does the price of gold. Moreover, a retirement account with exposure to gold will often keep pace with the inflation rate in terms of value. This is particularly important for retirees on fixed incomes who are concerned about the possibility of a falling dollar value.
Though it has its benefits as a diversification tool and hedge, many investors are drawn to the metal because it has never lost all of its value. Though the price of the precious metal has been volatile at times, the price has never fallen to zero unlike some stocks and bonds. Most astute, long-term investors use price drops in gold to purchase more of the asset.
Different Ways to Invest
There are different ways to invest in gold today, which can make it seem overwhelming for the beginner investors. The best ways to own gold is to invest through your IRA or former 401k account, because of the tax-saving component. Let’s go over the most popular ways to invest in gold and the pros and cons of each way:
Investing through your IRA
An IRA account legally enables you to hold gold coins like American Gold Eagle coins as well as gold bars or bullion that are 99.9 percent pure. However, the IRA trustee not the IRA owner, may hold these types of gold investments. In other words, you are not able to physically hold the gold in your home or safety deposit box. The asset is maintained by a third party contracted by your IRA custodian.
One of the challenges with IRA ownership of physical gold is that few investment firms offer the service of handling the transfer of funds to the gold dealer as well as completing the physical transfer and storage of the coins or bullion. Small institutions such as Sterling Trust Company and GoldStar Trust Company do offer the investment option, however. These trustees coordinate physical storage of bullion or coins with the Delaware Depository Service Company.
These trustees often charge a one-time set-up fee, an annual management fee and payment for storage and insurance costs. Additional fees may be incurred for account contributions and distributions as well as purchases and sales of gold bars or coins. Traditionally, the IRA owner is responsible for finding a gold dealer to buy or sell the bullion or coins for the account. Such dealers include Goldline International and USAGOLD-Centennial.
Investing in Mining stocks
If you want to invest in gold through your IRA, but don’t want the hassles and costs of physical ownership, you may decide to invest in gold mining stocks. Gold mining companies operate around the world profiting from the metal and benefiting from the rising prices of gold. Firms like Barrick Gold (ABX) and Newmont Mining (NEM) are established companies to consider for more stable investment options. Consult your broker for mining firms that offer more beta leveraged to the price of gold.
Investing in Gold ETFs
In addition, the SPDR Gold Shares (GLD) ETF tracks the price of gold. In the past, there was concern of whether these investment tools would be considered for tax purposes as collectibles because IRAs are not permitted to hold such items. The IRS, though, has ruled that ETFs have been classified as grantor investment trusts removing any potential tax problems.
Investing through your 401k
Unless your 401(k) provider offers gold stocks or gold exchange-traded funds among its asset choices, it is difficult to invest in gold through this type of investment vehicle. However, you may choose to liquidate your 401(k), when you change your job, and use the proceeds to purchase gold coins or gold bars. You also have the option to roll-over your 401(k) funds into an IRA plan that lets you invest in gold bullion, coins, stocks or ETFs. Consult an experienced broker when performing this transaction to reduce any potential tax liabilities.
For More – Few Reliable Ways to Buy Gold for Investment
By investing a significant amount of your retirement account in gold, you have exposure to a commodity with great potential to produce terrific returns. Savvy investors have benefited already from the rise in the metal over the last decade compared to the losses in the stock market and the effects of inflation on cash accounts.
Gold provides you with protection against inflation and the other currency debasing policies employed by central bankers around the world. Based on the history of the precious metal, you can sleep easy knowing that the commodity maintains its value well over time. Whether you choose to invest through your IRA in the physical metal, gold mining stocks or an ETF, these investments provide you with a strong strategy to preserve and grow your wealth.
Author Bio: John Kund is a retired financial analyst with over 10 years of experience helping Americans make savvy investments. He now blogs at Gold-401k and helps investors diversify their 401k and IRA retirement plans with gold.
Readers, the above was a guest post. I personally do not have any gold in my Roth IRA yet. Every investment has its own risk. It’s arguable if gold is in bubble. So I can’t be so optimistic about gold as our guest author is, and, I’d step cautiously. I am looking to increase gold exposure but, I will not get over board with gold either. Chose your steps carefully and consult experts before making any changes to your retirement portfolio.