Is Gold IRA a Good Idea? Gold IRA vs Mutual Funds for a More Secure Retirement


Gold IRA is a good idea if you are looking for an investment stream that you can use to hedge against inflation and stock market devaluation. A gold Individual Retirement Account (IRA) enables you to hold gold as a legitimate retirement investment. If you have an American Hartford gold IRA, for example, you can hold a gold bar, gold bullion, or gold coins as well as securities that are related to gold in your portfolio.

The rules about contribution limits and distribution of gold IRA are the same as a traditional IRA, but a gold IRA account is held separately from your other investments. A broker or custodian like Birch Gold Group can help you open and set up a gold IRA account.

If you’re thinking about whether or not a gold IRA is a good idea, it is useful to first understand how to start a gold IRA. Precious metal IRAs can be set up with pre-tax funds. You can also set it up as a Roth IRA if you want to use post-tax dollars. You will learn more about different types of IRAs later in this post. However, whether you choose a Roth IRA or not, your account will be managed by a bank or brokerage firm like Regal Assets specializing in gold IRAs. They will also physically store your gold assets for you.

Money that is invested in a gold IRA at Oxford Gold Group can also be used to invest in gold-related paper investments like stock in gold mining companies, precious metals funds, and gold commodity futures.

Are Gold-Backed IRAs Safe?

Gold-backed IRAs are safe, but that does not necessarily mean that they will earn you money over time. Every time you see an ad or a video that encourages you to invest in gold or silver coins, it always talks about how gold's value is never zero and how it historically outperforms the stock market by hundreds of percent. While all these are somehow true, there are a lot more nuances that you need to understand before making the jump.

The most important thing that you need to remember is that gold does not pay dividends and it does not have any earnings. It is a safe holder, yes, but its value shifts just like any stock and you will be stuck with the current value of the gold you are holding upon retirement.

When gold's value is going sideways, meaning the prices don't change for long stretches of time, you might see that the money you put in gold IRAs would have performed better in the stock market. In the image below, you can see that Dow Jones generally has had an upward trend in the past 10 years, with a dramatic dip during the COVID-19 pandemic. Gold's value resembles an inverted bell curve, where there have been substantial dips in value in the last 10 years.

As for gold being undervalued, this might be true, but the reality is no one can really predict the price of gold. In contrast, analysts have a better view of the stock market and how politics, federal policies, trade wars, etc can affect trading. Both carry risks, but as they say, it's better to stick to the devil you know.

Has Gold Been a Good Investment Over the Long Term?

Gold is a good investment over the long term, but historically, it does not outperform the stock market. Gold performs well during times of financial instability. Its value increased during the 2008 financial crisis, and all throughout the COVID-19 pandemic. 

When you invest in precious metals like gold and silver IRA in companies like Advantage Gold, the idea is not to outperform the stock market. Its purpose in wealth creation and management is to hedge against inflation and market upsets. Physical gold is a legitimate avenue to diversify your portfolio and as long as you don’t put most of your funds into it, it will pay off in the long run. Most financial experts recommend putting no more than 15% of your retirement fund into traditional gold IRA. Even for those with higher-risk appetites, investing only 30% of your funds is recommended.  

Unlike commodities that you can consume, the supply of precious metals like gold is static. Except for a small percentage of gold that is used for medical, culinary, or industrial purposes, the majority of the world’s supply exists as gold bullion, gold coin, or jewelry. Therefore, it is subject to market fluctuations and speculation. 

Recent Fluctuations in Gold Prices

In 2014 when the Federal Reserve announced that it was ending its much-debated stimulus program after the 2008 financial crisis, gold prices dropped dramatically. This is a result of how speculation can affect gold prices. Investors speculate what the government will do in times of financial or political upheaval and make calculated investment choices. In 2014, more investors decided to let go of their physical gold assets, leading to an increase in the supply of the metal and its huge price drop. 

On the other hand, some investors who decided to keep their gold for the past 30 years - through recessions, crises, and political distress - are seeing huge rewards. In the 1990s, the price of gold is around $270 and today it is around $1700. It might have grown more in the stock market, but a 600% increase in value is not a bad return.

Does Fidelity Have Gold IRA?

Fidelity has a gold IRA and if you want to diversify your investment portfolio, investing here is not a bad idea. As mentioned above, gold tends to increase in price during times of financial instability, or when the stock market is low. Investing in a Fidelity gold IRA is like an insurance policy against inflation or upsets in the stock market.

Another thing to consider is the amount of money you want to invest in a gold IRA. The IRS caps the amount you can invest in gold and only allows you to keep it in approved depositories. These facilities charge storage and/or custodian fees. You need to make a calculated risk of whether or not the value of the gold IRA you bought will be worth it after taxes, fees, markups, and cash-out costs.

Ultimately, whenever you invest in something, including traditional gold IRAs and Roth gold IRAs, invest only the amount you can afford to lose, and diversify, diversify, diversify.

Does Vanguard Offer Gold IRA?

Vanguard does not offer a pure gold IRA, but it offers the Vanguard Capital Cycles Fund, which invests 25% of its portfolio into precious metals IRA and gold mining companies. Investors can follow Vanguard’s lead and protect themselves from geopolitical instability and interest rate risk by investing a portion of their portfolio in precious metal IRAs.

What is a Gold IRA Rollover?

Gold IRA rollover refers to shifting funds from your Roth IRA or 401(k), to a gold IRA. It is a simple process similar to any rollover procedure in other retirement funds. You just need to fill out an application and the funds will be rolled over to the gold IRA within 24 to 48 hours. 

The transfer of the physical gold happens between custodians. When all the documents are processed, the previous broker will contact the new one and set up the transfer to fund the new gold IRA. As soon as the funds are transferred, the investor can choose from the current precious metal options and confirm their purchase with an account executive.

What is the Best Type of Gold to Invest In?

Experts say that owning the actual precious metal is much better than any paper asset. If you are planning to do high-frequency trading, however, you are better off with paper assets because these do not require storage and cashout fees. 

Gold-related paper assets are more commonly referred to as Exchange Traded Fund or ETF. It’s like buying gold stock. The most commonly traded ETF has the ticker symbol “GLD” and its price goes up and down as the value of gold shifts. However, ETFs cannot be exchanged for actual gold or any other precious metal.

What are the Pros and Cons of a Gold IRA? ETF vs Physical Gold

The main advantage of an ETF is it doesn’t require you to pay custodianship fees. If you are a heavy frequency trader, or you are interested to learn about this type of trading, ETFs and gold futures are for you. High-frequency trading requires you to invest in assets without physically owning them, making ETFs a suitable option. Note that since it’s just like any stock, its value does not move opposite to the stock market like physical gold. It is very difficult to liquidate when the market crashes. 

Investors who value complete transparency in their trades will benefit from investing in a gold ETF. Due to its direct connection to gold pricing, there is complete transparency on the holdings of gold ETF. 

Since the value of gold tends to rise when the dollar is weak, investors who want to hedge that exposure can diversify their portfolio with gold ETF. This is especially valuable if the investor has high-risk assets that are sensitive to stock market upsets, since owning gold ETF can help reduce their risk. 

Gold-related paper assets are a good indicator of the changes within the industry. For example, investors who want to gain exposure to the gold mining industry can buy ETFs that are related to mining companies. 

On the other hand, the main advantage of physical gold is that it is a tried and tested store of value. To mitigate the risks of ETFs, smart investors rely on physical gold. This precious metal has been a store of value for more than 5000 years and is unlikely to be completely worthless in the future. It provides balance for any losses that you will encounter with paper assets. 

What is the Best Gold IRA Company? 

The best gold IRA company is one that is transparent and clear about fees and surcharges, and has a good track record. Custodians are normally banks, trust companies, brokerage firms, and savings and loan associations. These companies need to be approved by the appropriate federal or state agencies. Well-known custodians with good relationships with a long list of clients are your best bet. 

Check the broker’s transparency and reputation. Make sure that you know all of the fees upfront to avoid any unplanned brokerage expenses or hidden fees. They need to have a good rating with third-party auditors like the Better Business Bureau or the Business Consumer Alliance. The custodian must be willing to educate you on the intricacies of gold IRAs and they must be willing to cater to your needs as an investor. 

You need to establish a self-directed IRA if you want to invest in gold. Self-directed IRAs give investors access to a wider range of gold investment products. The best gold IRA company needs to be approved by the IRS since they will physically store or hold the physical gold for you

Typically, an IRA custodian will charge you for account set-up, custodianship, storage, and cashing out. A good broker will explain what each of the fees is for, how much they are, and the frequency of the payments.

Is Gold IRA FDIC Insured?

Depositories must have insurance before they can apply to the IRS and become an approved custodian of gold. Your investment is safe as long as your account doesn’t go beyond the stated value in your contract. Even in cases of theft, as long as you are with a legitimate custodian, you can get your investment back. 

There have been cases where brokers steal from the customer’s portfolio by selling precious metals that are not theirs to trade. To eliminate the chance of falling victim to these scams, make sure that you check that the company has the right papers and insurance.

What is the Effect of Federal Reserve Policies on Gold?

Historically, gold’s value increases when the Federal Reserve increases rates. It is easy to conclude that if bonds, mutual funds, and other fixed-income investments are more promising and high-yielding, funds will move out of gold IRAs if the Federal Reserve will increase the interest rate. However, there is not a lot of historical evidence that the value of gold is substantially weakened whenever there is a rate hike or Treasury yield. 

There were some examples of gold losing some value whenever rates go up, but ultimately, the relationship between the price of gold and interest rates is not related because gold is a globally traded asset that is subject to forces that the Federal Reserve cannot control. 

In the long term, the trend in the prices of gold shows that there is no direct correlation between its value and federal interest rates. Prior to the 2000s, gold prices steadily went up if the interest rates increased, and decreased when the interest rates fell. 

For example, the biggest bull market for gold happened during the 1970s, which is the same time interest rates were high and steadily rising. A decade later, the interest rates quadrupled and the price of gold grew with it, from $50 an ounce to an unprecedented $850. After the 1980s, there was a long bear market and interest rates fell quickly. Prices of gold followed suit until its next bull market in the 2000s. 

How Stock Market Corrections Affect the Price of Gold

Whenever the stock indexes reach unprecedented levels, it is always followed by corrections and decline. When this happens, investors tend to transfer their funds to gold, pushing prices up. In 1973 and 1974, interest rates were at an all-time high and the S&P Index dropped by more than 20%. 

When investing in gold, it is helpful to think of gold as a commodity with prices that are subject to supply and demand. Between the two forces, demand is what drives price changes more. Surges in the supply of gold, historically, only cause a short-term dip in the prices whereas demand can change depending on the investor’s mood and buying trends. 

Another driver for gold prices is the US dollar because this precious metal is dominated by the dollar. Whenever the currency falls, there is always a surge in demand because it is “cheaper” to buy gold when the dollar is low. Eventually, this surge in buying interest will lead to higher gold prices.

It isn’t the gold market that suffers the largest loss of capital investment when interest rates make bonds and other fixed-income investments more profitable. Rising interest rates almost always lead investors to buy into bonds more than stocks to rebalance their portfolios.

Final Thoughts: Which Gold IRA Company is Right for You?

To minimize risk and shield against inflation, investing in a gold IRA at companies like Noble Gold, Regal Assets, American Hartford Group, Birch Gold Group, Lear Capital, Rosland Capital, and Augusta Precious Metals is not a bad idea. However, they should be considered alternative investments - a small part of a diversified portfolio.

Gold prices can fall dramatically. While gold is often seen as a secure investment, it is a produced commodity that is subject to the same problems that stocks have. When there is more gold produced, there will be a quick drop in the prices. There are also traders to buy and sell gold in the market to create short-term imbalances and price changes. 

The prices of physical precious metals fluctuate daily and it is not possible to have a permanent bull market for this type of IRA. Gold is prone to surges in supply. Market conditions and Federal Reserve policies can greatly affect the value of gold bars. 

It doesn't matter if you bought gold from the best company for gold IRA or if your broker or custodian is the best in the field. Check the historical value of gold and determine for yourself whether you are willing to bet your retirement savings on it.

About the author 

Emillene Torres

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