Top 5 Reasons Investors Are Investing In A Gold IRA

Should You Buy Gold? Here are 5 reasons gold is a good investment

See why investors are buying gold

“Gold is money. Everything else is credit.” –J. P. Morgan

If you want to create a diversified retirement portfolio then Gold IRAs are the right option for you. Gold IRAs work just like normal IRAs, except the fact that instead of investment in stocks and bonds, here the investor purchases gold.

Gold IRAs become an excellent supplement to rest of the retirement funds investors have due to the fact that compared to value of paper assets such as stocks and bonds, gold’s value moves in opposite direction. As such, when paper assets lose value, gold increases in value, and vice versa.

Thus, if other investments you have go down, Gold IRAs you have will become more valuable and easily compensate your losses.

Reason #1: Greater Diversification

Stocks normally display higher degree of correlation with each other. Additionally, such correlation increases at the time of market downturns. Thus, if there is a significant market correction then what happens is that most of the equities start losing their value.

It is also worth mentioning here that stock and gold prices tend to have negative correlation. For instance in 7 of the 8 bear markets witnessed in the last forty years; S&P 500 lost over fifteen percent.

On the other hand, in 6 of these bear markets, gold provided positive returns and in 3 of them, gold resulted in almost double digit returns. Thus, if you are looking for true diversification then gold is the right option for you.

Reason #2: Wealth Preservation

Currently, US dollar is considered a valuable reserve currency but, it can also fall in value, as was noticed between 1998 and 2008. However, during the same time period, gold increased in value quite significantly.

In early 2008, it moved close to $850/ounce and between 2008 and 2018 it continued its rise, reaching up to $1,300/ounce figure.

As such, during tough times, it turns out to be a secure investment option and helps in preserving wealth if paper currency fails.

Reason #3: Higher Liquidity

If you have gold in your portfolio, it offers higher liquidity compared to other types of investment like stocks, treasury bills, mutual funds, and bonds.

This is the reason financial experts suggest that investors should allocate somewhere between ten and thirty percent of their investment portfolio in Gold IRA.

Let us look at Exter’s Pyramid, which depicts hierarchy of assets according to degree of liquidity they have. From complex derivatives and other illiquid assets to higher liquidity assets such as gold.


Reason #4: Gold Has A Better Intrinsic Value

If we look at paper currencies, these can be printed whenever required and there is no real value attached to them. On the other hand, gold is a metal that has its own unique intrinsic value.

It is to be mined and can not be manufactured. Plus it is one of the scarce commodities that do not carry any counterparty risk and it can not be diluted.

Moreover, while constant devaluation and inflation of paper currencies wither away our purchasing power, gold continues to function as a strong pillar of security to shield us from such corrosive forces.

Reason #5: Unique Distribution Options & Tax Benefits

When a Gold IRA account is liquidated, the distributions can be in the form of physical possession or liquidation of the same for cash according to their present market value. Additionally, if it is a Roth account, then withdrawals will be tax-free since contributions are already taxed. Moreover, you will not be forced into withdrawing money at the age of 70 ½.

In addition to different distribution options, Gold IRAs also offer tax benefits. Investments in Gold IRA are taxed at marginal tax rate of the tax payer instead of the 28% tax rate for maximum collectibles.

How to open a Gold IRA account?

Opening a self directed IRA account will be the first step you will have to take with a custodian (could be banks, credit unions, trust companies, loan and savings associations, or brokerage firms).

After that, funds are to be deposited in the account, similar to what is done in any normal IRA. You can make a deposit from your savings account or you can also roll over your old IRA or 401(k) into this new Gold IRA account.

When the deposit is made, you will have to select the metal dealer. You may well find someone yourself or if custodian recommends his partners, then you can opt to work with them as well.

Alternatively, metal dealer you found can suggest a custodian to appoint for the account. You need to ensure that custodian you select is licensed as well as has necessary insurance.

In addition to different distribution options, Gold IRAs also offer tax benefits. Investments in Gold IRA are taxed at marginal tax rate of the tax payer instead of the 28% tax rate for maximum collectibles.

IRS Requirements to Keep Note of

The gold you purchase should meet IRS requirements such as, it should have fineness of 0.995 or more and must be produced by a government operated mint or any accredited institution. Being a physical commodity, it is necessary to store gold somewhere.

As per IRS standards, gold is to be stored by IRA custodian and it is to be stored in any of the depositories approved by the IRS.

If you want more information or invest in Gold IRA then get in touch with us today! Our financial experts will help you understand everything about Gold IRAs and how to invest in the same to secure your retirement nest egg.

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