With inflation remaining stubbornly high, more and more Americans are worried about the impact inflation is having on their financial well-being. Real incomes continue to drop, while inflation erodes the purchasing power of savings and investments. If this doesn’t stop soon, millions of Americans will find their standard of living irreparably harmed.
Even though the Federal Reserve has stated that it intends to fight inflation, thus far its efforts seem to have done little. And Americans have to suffer and wonder how long this inflation will last. Is it only temporary, as many like to think, or will it endure like the stagflation of the 1970s? And how can people overcome the negative effects of this inflation?
One increasingly popular method of inflation protection is investing in gold through a gold IRA. Gold has served as an inflation hedge and safe haven asset for centuries, and is one of the assets people trust when it comes to wealth preservation. With a gold IRA, buying gold to protect your savings and investments can be done with ease. But that still brings up one important question: when is the right time to start a gold IRA?
What Is a Gold IRA?
If you haven’t already heard of a gold IRA, it is just an IRA account that invests in and holds physical gold coins or bars. You may also see it referred to as a gold-backed IRA, a precious metals IRA, or various other terms.
A gold IRA isn’t much different from any other IRA, and is subject to all the same rules and regulations as any other IRA account. And from an investor’s perspective one of the biggest advantages of a gold IRA is that it offers the same tax advantages as any other IRA account.
Benefits of a Gold IRA
There are multiple benefits to investing in a gold IRA, but there are four that stand out.
Many people think that diversification means investing in a variety of financial assets such as stocks, bonds, or mutual funds. For many people with existing tax-advatnaged retirement accounts, those are often the only types of investments in which they can invest.
Many 401(k) plans or IRA custodians only offer a limited range of investment options. But with self-directed IRAs, you can invest in a wide array of alternative investments, such as real estate, private equity, or precious metals.
A gold IRA is a type of self-directed IRA that puts you in control of your assets and allows you to choose what you invest in. With your gold IRA you can buy gold coins or bars, which are then managed by an IRA custodian and stored in a bullion depository per IRS requirements. But you remain the owner of those gold coins and bars, and you can choose to take a distribution whenever you want.
Portfolio diversification with gold alters the risk profile of your investments and can help make your financial assets less prone to sudden loss when markets collapse. Many people trust gold to help protect themselves against loss in the event of recessions or financial crises that can hammer Wall Street and financial markets. Even the most ardent opponents of gold will often begrudgingly admit that holding a percentage of your assets in gold can help your portfolio diversification.
Safe Haven Asset
Gold has served as a safe haven asset and as a store of wealth for centuries. During times of instability, when other assets lose their value, gold maintains its value and its utility as a currency, means of exchange, or store of wealth. There’s a reason that central banks continue to hold gold too, as they understand that gold is the ultimate safe haven.
Gold also has been traditionally seen as a hedge against inflation, as it maintains its value and purchasing power over the long run. While the dollar has lost 86% of its purchasing power since President Nixon closed the gold window in 1971, gold had risen over 4,700% in value. And the last time the US faced stagflation, gold saw annualized gains of over 30% over the course of a decade, even as double-digit inflation eroded the value of the dollar.
Because a gold IRA is subject to the same rules and regulations as any other IRA, it offers the same tax advantages as any other IRA. Probably the most popular form of gold IRA is the Traditional gold IRA, which uses pre-tax dollars to buy gold. Gains are tax-free and taxes are only paid when you take a distribution.
You can fund your Traditional gold IRA with a tax-free rollover or transfer from an existing 401(k), IRA, TSP, or similar retirement account. That allows you to protect your existing retirement savings with an investment in physical gold.
You could also start a Roth IRA and fund it with post-tax dollars or through a Roth conversion. With a Roth gold IRA gains also accrue tax-free, and you pay no taxes when you take a distribution.
When to Start a Gold IRA
It’s hard to know when is the best time to start a gold IRA, but like many types of investments, the best time to start was yesterday. In all seriousness, however, the sooner you start a gold IRA, the sooner you can start making gains and protecting your wealth.
Starting a Gold IRA as an Inflation Hedge
If you’re looking to start a gold IRA as a hedge against inflation, you’re already behind the curve. Inflation has been running rampant for over a year, and has already taken significant bites out of most people’s finances. Combine that with the poor performance of markets this year, and many people are seeing real losses well into the double digits.
Even positive returns are being eroded by inflation, as inflation rates of 8% and higher mean that your investments have to return at least that much in order to have gained you actual value. The worst part is that no one knows how long the Fed will take to bring down inflation, or if the Fed’s inflation fight will even be successful.
While Fed Chairman Jay Powell is trying to harness his inner Paul Volcker, so far the Fed’s efforts haven’t been successful. And if you look at the historical precedent of the 1970s, inflation could very well take a roller coaster ride.
Even if inflation were to recede to 5% or even 3% next year, who’s to say that the Fed wouldn’t rev up the money creation if the economy falls into a severe recession? That could send inflation surging once again. Failing to protect your assets against inflation now could end up hurting you if inflation ends up becoming entrenched like it was in the ‘70s.
Starting a Gold IRA as a Safe Haven
The best time to start a gold IRA if you’re looking to protect your assets against a recession is before the recession occurs and before the assets you’re looking to protect lose value. But that’s easier said than done, as market timing is understandably difficult.
Think about how many people deny that a recession is coming, or deny that markets are correcting. They think that bull markets will go on forever, and so they hold off on trying to protect their assets until reality is staring them in the face.
By that point, however, they may have lost 20%, 30%, or even 50% or more of their savings. And then they decide to get out of markets right at the trough, missing out on the upswing of recovery. It’s a tale that has been repeated time and again through recession after recession, yet many people never learn their lesson.
Thousands of Americans have already taken steps to help protect and safeguard their savings, many of them by buying gold. Many others are waiting to see which way markets will turn before they make a decision, but if they wait too long they risk losing even more.
If you’re looking to start a gold IRA as a safe haven, the best time to start a gold IRA may be today. At the very least, start exploring your options when it comes to protecting your wealth, as the US economy seems poised to enter a recession that could end up being very painful.
Learn More About a Gold IRA
Is today the best time to start a gold IRA? If you’re serious about safeguarding your savings then at the very least you should start thinking about how to protect them. And a gold IRA might be one option to consider.
With the ability to move your existing tax-advantaged retirement savings into a gold investment tax-free, the potential for growth due to gold’s ability to gain value even during times of high inflation and financial crisis, and the security that comes from owning tangible physical assets, a gold IRA offers numerous benefits. If you want to learn more about a gold IRA, contact the precious metals experts at Goldco today.