Investors choose to invest in a gold IRA for a number of different reasons. Some are looking to protect themselves against stock market losses. Others are trying to safeguard their wealth against inflation. And still others are just looking for an asset with which to diversify their portfolios.
Regardless of their reasons for investing in a gold IRA, these investors are taking advantage of an increasingly popular method of gold investment. If you don’t know how to invest in a gold IRA, or even know what a gold IRA is, read on for this full guide about how to invest in a gold IRA.
Why Invest in Gold
If you’ve never invested in gold before, you may be wondering why anyone would want to invest in gold. But gold has been a treasured asset for millennia, helping protect wealth and assets through economic and financial turmoil.
Each individual’s reasons for investing in gold may vary, but there are a few important reasons for investing in gold that many investors have in common.
1. Diversify Your Portfolio
One of the most important roles gold plays is in diversifying an investment portfolio. Many investors think that they can just invest in a variety of stocks and bonds and that will result in a diversified portfolio. But both stocks and bonds are subject to the boom and bust cycle of Wall Street.
In the event of a systemic financial crisis, both stocks and bonds are liable to lose value. We saw an example of that during the 2008 financial crisis, when stock markets collapsed and bond markets froze. If you’re only investing in stocks and bonds, you’re putting your wealth at risk in the event of another 2008-type crisis.
True diversification means not just investing in a range of stocks and bonds, but also various other types of assets, such as real estate, commodities, and precious metals such as gold and silver. How exactly you want to diversify your portfolio is up to you and your financial advisor, but gold can play an important role in portfolio diversification.
2. Protect Against Inflation
Gold can also play an important role in protecting your assets against inflation. That’s particularly important during times in which inflation is high and rising.
Gold has a tendency to gain value during times of high inflation, comfortably gaining value in excess of inflation. During the 1970s, for instance, gold’s average annualized gains were over 30% over the course of the decade. With inflation peaking at 11%, that meant that gold’s real gains were over 20% per year for a decade.
Compare that to stock market indices such as the Dow Jones Industrial Average, which began the 1970s at 809 points and ended 1979 at 838 points, a total nominal gain of only 3.65%. So at a time when investing in stocks would have left you with negative gains after inflation, gold gave investors the possibility of double-digit real returns.
It’s no surprise that investors today are once again turning to gold to help bolster their investments against high inflation. If gold were to repeat its 1970s performance today, gold owners would see some enormous gains.
3. Defend Against Devaluation
Higher inflation means that the value of your dollar-denominated assets declines every year in terms of its purchasing power. And over the course of the 20th century, the dollar continued to decline in value every single year.
Since 1913, the US dollar has lost 96% of its purchasing power. Gold, however, has consistently gained in value, from $20.67 an ounce in 1913 to over $1,800 an ounce today. That enables gold to maintain its purchasing power in the face of a constantly devaluing dollar.
There is almost no likelihood that the Federal Reserve will cease its policy of dollar devaluation. The historic trend is and always has been towards further dollar devaluation. The question you then have to ask yourself is what you place your trust in more: the Fed not to devalue the dollar even faster than usual, or gold to protect your assets against dollar devaluation.
4. Survive a Stock Market Crash
Gold also has a reputation for protecting investor wealth during times of economic crisis such as stock market crashes. You probably remember the 2008 financial crisis, when stock markets lost over 50% of their value and many investors saw years or even decades of retirement savings wiped away.
While stocks declined and then struggled to regain their pre-crisis highs, gold made an amazing climb in value, nearly tripling in value by 2011. Many investors saw that ability of gold to protect and preserve wealth when it seemed like everything else was falling down around them, and they vowed the next time around not to let their assets be subject to the whims of Wall Street and its boom and bust cycle.
It’s almost certain that when stock markets stumble into their next major crash, the gold price will take off once again. We saw a glimmer of that in 2020. All gold is waiting for is the clear signal that stock markets are in distress, and it will likely be off to the races.
5. Grow Your Portfolio
Gold doesn’t just protect the value of your savings and investments during bad times either. Even when stock markets are gaining value, or in a bull market, gold can provide an opportunity for asset appreciation and wealth accumulation.
From 2001 to today, gold has grown at an average annualized rate of 9.5%. Compare that to the Dow Jones, which has grown at 5.8%, or the S&P 500, which has grown at 5.9% during that same time period. That’s two decades of more than 50% greater gains, meaning that someone who had chosen to invest in gold rather than stocks back then would have come out far ahead by now.
That’s a testament to gold’s ability to add to your wealth, and a reminder that gold isn’t just a safe haven asset that can be turned to when times get tough. Even when things seem to be going well on Wall Street, gold can play a vitally important role in your investing portfolio.
What Is a Gold IRA?
If you believe in the case for investing in gold, you still may not be familiar with a gold IRA. Or you may wonder whether you can just invest in gold through an IRA at your existing brokerage.
Unfortunately, most brokerages don’t offer you the option to invest in gold through their IRA programs. Instead, investing in a gold IRA means that you’ll need to be a little more proactive and open a self-directed IRA.
A self-directed IRA is just like it sounds. It’s an IRA account that you as the investor direct. Rather than being dependent on a brokerage for your financial transactions, you decide which assets you want to invest in and how much. You are the fiduciary, not a brokerage.
A self-directed IRA can give you more control over your investments, and can open up a whole new world of investment opportunities. Most institutions limit the types of assets you can invest in, often due to the fact that they charge fees for your investments. It’s more cost effective to offer stocks, bonds, mutual funds, exchange-traded funds, etc., on which fees can be charged, rather than assets like gold or real estate which you’ll likely sit on for some period of time.
With a self-directed IRA, rather than being limited to whatever assets your brokerage offers you, you can choose to invest in just about anything there is, including precious metals like gold.
Precious Metals IRA
A gold IRA is a type of precious metals IRA, allowing you to invest in physical gold coins or bars. These precious metals IRAs are a self-directed IRA, giving you the opportunity to invest in a gold IRA and reap the benefits of an investment in gold.
You’re not limited to investing in gold either. If you want to invest in silver, palladium, platinum, or other precious metals, you can do so too. But gold is one of the most popular precious metals investment options, with the most choices and the most liquid market.
How Does a Gold IRA Work?
If you’re unfamiliar with a gold IRA, you may wonder how exactly it differs from a normal IRA. Aside from a few rules that are specific to precious metals, a gold IRA follows the exact same rules as any other IRA account.
Basic IRA Rules
Like any other IRA account, a gold IRA is subject to IRS laws and regulations. These include the requirement to have IRA assets managed by a custodian, laws against self-dealing, and regulations surrounding contributions and distributions.
As with any other IRA, the contribution limit for 2022 is $6,000, or $7,000 for those over age 50. Required minimum distributions from a conventional gold IRA also have to be taken once you reach age 72, just like with any other conventional IRA.
A gold IRA has specific rules regarding the types of gold coins or bars you can invest in. All gold held by a gold IRA must either be a specific US Mint coin authorized by statute, or a coin or bar containing a minimum fineness of .995 (99.5% gold). This is to keep IRAs from investing in collectibles, which are prohibited as investment assets for IRA accounts.
That means that some of the popular bullion coins or historical investment coins that remain popular with some investors, such as the South African Krugerrand, are not eligible for investment with a gold IRA. If you were to attempt to purchase coins that were not eligible for investment with a gold IRA, that would be considered a distribution of account assets and would be subject to any applicable taxes and penalties.
This is why it’s important to familiarize yourself with the rules of IRA accounts, and especially gold IRA accounts, before you decide to open a gold IRA. Talking with your financial advisor and tax advisor can help you avoid some of the common pitfalls that could harm you.
Gold IRA Investment Options
Aside from the requirements regarding gold fineness, the range of gold investment options available to you when you invest in a gold IRA is nearly limitless. Gold coins are available in numerous sizes, with the most common ranging between a quarter of an ounce and one ounce. Gold bars are available in numerous sizes as well, from as little as one gram up to hundreds of ounces.
Mints around the world are constantly creating new coin options to appeal to investors. Coins of numerous different sizes and designs are available, with new ones appearing each year. With so many options available, there is something out there for everyone.
Gain Control Over Your Investments
One of the key benefits of investing in a gold IRA is gaining control over your investments. Your assets will be stored safely with a depository and managed by a custodian, but you decide when you want to buy or sell gold. You can add to your gold holdings whenever you want to, pursuant to IRS regulations, and take distributions penalty-free after age 59 ½.
When it comes time to take your distributions, you can even take them in the form of physical gold, allowing you to hold onto your gold investment even after it is no longer in a tax-advantaged account. That can allow you to continue benefiting from your gold investment long into retirement.
Starting a Gold IRA
Starting a gold IRA doesn’t have to be difficult at all. There are only a few steps that need to be taken, and the entire process can be done seamlessly.
1. Select Your IRA Plan
The first thing you’re going to want to do is to select your IRA plan. Most people will opt for their gold IRA to be a Traditional IRA, meaning that it is funded with pre-tax dollars. That’s because many investors roll over or transfer assets from an existing tax-advantaged retirement account, such as a 401(k), 403(b), TSP, or IRA account.
You also have the option to create a Roth gold IRA account, funding it with post-tax dollars. That allows you to perform rollovers or transfers from existing Roth accounts you may hold, or you can perform a Roth conversion from accounts you have that have been funded with pre-tax dollars.
As with all investment decisions, you’ll want to consult with your financial advisor and tax advisor first, to make sure that you don’t expose yourself to tax liabilities or unnecessary complications.
2. Select Your IRA Custodian
As with any IRA, your assets must be managed by a custodian. Goldco has established relationships with IRA custodians who have long track records of customer service and satisfaction. When it comes to protecting your retirement savings, you can’t be too careful with who you trust to manage your hard-earned wealth. Goldco’s record of customer satisfaction is one of the best in the industry, and we work hard to make sure that your savings stay safe and secure by working with some of the most trusted custodians in the self-directed IRA industry.
3. Fund Your Gold IRA
Now it’s time to fund your IRA. Many investors will choose to fund their gold IRA through a 401(k) rollover, or a rollover or transfer from a 403(b), 457, TSP, IRA, or similar account. In most cases these rollovers and transfers can be done tax-free, ensuring that you don’t incur any taxes or penalties when you decide to invest in gold. But as with any financial decision, be sure to consult with your tax advisor and financial advisor to make sure that you aren’t accidentally exposing yourself to tax liabilities.
4. Choose Your Precious Metals
Once your gold IRA has been funded, it’s time to select the precious metals you want to purchase. Goldco offers a wide selection of gold coins and bars from a variety of mints throughout the world. Because of our established relationships, we can ensure that the coins you’re purchasing are 100% authentic.
5. Purchase Your Gold
Once you have selected the type of gold you want to buy, you will use your gold IRA assets to purchase those coins. They’ll be stored safely at a depository, and you will receive regular updates about the status of your gold holdings. Whenever you want to buy more gold, or to sell your gold holdings, you can reach out to Goldco to assist you with the process.
Your Goldco representative will help you through the entire process of buying gold from start to finish. And if you have any questions about the process, your representative will be able to answer them.
Still Wondering If a Gold IRA Is Right for You?
Have you worked hard for years to save money for retirement? Are you worried about your investments losing value to inflation? Are you afraid of how a stock market crash could wipe out your retirement savings? Or are you just looking for alternative investments that could help boost the value of your portfolio? Then maybe investing in a gold IRA is something you want to look into.
With high inflation and unease in stock markets, many investors are looking nervously at what is taking place on Wall Street and in Washington. They’re unnerved by what the Federal Reserve has done in pumping trillions of dollars into the financial system, and they know that the consequences are going to be bad. And they’re determined not to let their retirement savings fall victim either to inflation or a stock market crash.
The memories of 2008 are still fresh and painful for many investors. Many of them vowed back then never again to subject themselves to the types of losses they saw in 2008. They saw the performance of gold during the depths of the crisis, and watched as gold reached all-time highs. And they vowed that the next time around, they would be prepared with an investment in gold.
If you’re looking to protect your retirement savings, investing in a gold IRA could be the key to protecting your assets against loss, whether it’s against the constant annual loss of value to inflation or the catastrophic loss of a stock market crash. But time is of the essence. Every day you put off the decision to protect your investments, you lose more money to inflation and increase the risk that you’ll be caught short when stock markets lose steam.
Don’t let your retirement savings stay at risk any longer than they have to. Call the precious metals experts at Goldco today to learn more about how gold can help safeguard your savings.