At some point, everyone needs to start planning towards their retirement. Financial planning is very important and one way to plan for your retirement is to get your retirement account. If you are at this point, you most likely are considering a regular IRA.
This account allows people to invest and save towards their retirement tax-free. This is a great opportunity and everyone tends to jump on it. However, in times of economic uncertainties, investing or saving up for your retirement in just fiat currency isn’t such a great idea.
This is why you need to consider a gold individual retirement account. You may likely be wondering what is gold IRA and why should I be interested in it? Well, these questions are what we intend to answer in this article.
Read this article to the end to find out every important thing you need to know about gold IRAs.
Table of Contents
What exactly is a Gold Individual Retirement Account?
Gold individual retirement accounts are self-directed individual retirement accounts (SDIRAs) that allow investors to hold precious metals towards their retirement. Other precious metals other than gold like silver and palladium can be held in these accounts as well. Hence, another name for it is precious metal IRA.
Why Should You Get a Precious Metals IRA?
Precious metals for as long as time have always proven to be a trustworthy store of value that can tolerate certain economic crises. When you invest in them with your retirement portfolio, you stand to gain several benefits. Below are some of the most important reasons why you should get a precious metals IRA:
If you are familiar with traditional IRAs, then you know that they have a special tax treatment. IRAs are usually tax-deductible. What this means is that if your investment grows while it is in the account and you get any capital profit, it won’t be taxed.
This same treatment also applies to gold IRAs since they are simply a special type of retirement account. So, at the end of your investment, you may end up with more capital profit since you won’t be taxed for it.
2. Portfolio Diversification
Every savvy investor or financial advisor will advise people to diversify their investment portfolio as best as they can. This is because spreading your asset across several asset classes is the best way to protect your investment from the risks attached to asset volatility. You can read this article to find out more about why portfolio diversification is vital.
Sadly, in good economic times, people tend to fall prey to the pitfall of a single investment strategy. This can spell doom for the investor if the investment they choose ends up performing poorly. When it comes to investment, the saying of not putting all of one’s eggs in a basket should be taken as literally as possible.
Now, other asset classes like stocks, bonds, and so on tend to correlate highly. What this means is that the price of one can affect the price of the other. So even if you add all these to your portfolio, you most likely won’t achieve the diversification that will adequately protect you in troubled times.
This is why investing in an asset that doesn’t correlate with these common classes is the best means of diversifying your portfolio. This is what gold and other precious metals offer; a different and clear-cut portfolio diversification.
While precious metals offer you proper diversification, you won’t be achieving this if you only invest in them. For your portfolio to be diversified, you will need to invest in precious metals and other asset classes.
3. This Investment is Long-Term
Precious metals especially gold are illiquid assets. What this means is that buying or selling them off quickly to convert them to cash isn’t so easy.
You may be wondering how this is supposed to be beneficial, because looking at it from the surface, this seems like a drawback. But, we assure you that this illiquid nature of the asset can be a huge benefit.
Since you are saving towards your retirement, you need a long-term plan. You need an investment plan that cannot be easily withdrawn. This is exactly what you get by investing in precious metals due to their illiquid nature.
4. Hedge over Inflation
A significant con of fiat currency investment is that with time, the currency’s value will depreciate. So, let’s say you make a 100 dollars investment today, when you eventually want to withdraw it, its value may be down to just 80 dollars.
Gold and other precious metals can protect you against inflation as they have historically been known to act as a hedge over inflation. These assets tend to do good and even add gains in times of economic crisis. So, investing in them is a sure way of ensuring your wealth is kept safe against inflation.
As we have said, gold IRAs are self-directed. So, even though your custodian will be in charge of handling the transactions done with the account, you can also oversee the investment and know how it is being used. You can visit https://en.wikipedia.org/wiki/Self-directed_IRA to learn more about self-directed IRAs.
This gives savvy investors an advantage as they can use their knowledge of the market forces to influence how their investment is managed. But for someone new to this all, this can be a little intimidating. But with time, anyone that wants to learn should be able to get a hang of it.
Gold or precious metal IRAs are a type of self-directed account that allows people to invest towards their retirement with precious metals. These accounts often offer their holders several benefits including hedge over inflation, portfolio diversification, and so on.