Gold and retirement investing
When thinking about including gold or other precious metals in a retirement portfolio, it’s important to understand how gold trades, what influences its price, and how gold fits into an investment portfolio overall.
Gold’s Investment Role
Gold can be an intriguing investment for many reasons. Its track record as an inflation and currency hedge, its inverse correlation to the stock market at times, and its relative stability in times of geopolitical unrest are all attractive qualities for investors. It’s no surprise that many investors include some gold in their portfolios, whether in the form of bullion, coins, or exchange-traded funds (ETFs) that track the price of gold.
Gold can also be difficult to know whether the time is right to invest in gold. Gold’s price fluctuates, sometimes sharply, in response to many different factors including investor sentiment, industrial demand, the actions of central banks, and geopolitical developments. Sometimes gold’s price rises dramatically, and investors worry they’ve missed their chance to get in. Other times gold’s price falls and investors second-guess whether gold belongs in their portfolio at all.
Gold prices and market data
Gold doesn’t produce earnings the way stocks, bonds, and real estate investments do. It doesn’t pay dividends or interest or rent. So, if you’re considering adding gold to your retirement portfolio for diversification purposes, it’s important to understand how gold’s price moves, what factors influence those price movements, and how gold has historically behaved in relation to other assets.
Retirement Account Checks
If you’re considering purchasing gold or other precious metals to hold in a self-directed retirement account, it’s important to do your homework first. Here are a few considerations:
How will precious metals fit into your overall investment strategy? Are you buying to hedge against currency devaluation or inflation? To protect against geopolitical unrest? To add diversification to your portfolio? Make sure you’re buying the right type of investment to accomplish your goal.
What are all of the fees associated with buying and holding precious metals in your retirement account? Beyond the cost of the metals themselves, you’ll likely pay a variety of other fees, including:
Be sure you understand all of the fees you’ll pay, not only to purchase the metals, but to own them in your account.
What types of gold/precious metals can you purchase for your account? Most self-directed retirement accounts can only hold IRS-approved bullion and coins that meet certain purity requirements. Make sure you’re purchasing the right type of metal/coin/bar for your retirement account and avoid overpriced specialty/collectible coins.
How will your metals be stored? Precious metals held in retirement accounts must be stored with an approved third-party storage facility. If you take possession of the metals yourself, the IRS may consider this a distribution from your account with negative tax implications. Ask your storage provider to walk you through how your metals will be stored (i.e., allocated vs. unallocated), how inventory is tracked, what insurance is provided, and how in-kind distributions work.
Provider Comparisons
Precious metals retirement accounts
While rankings such as the provider comparison published by Globe Newswire may be useful, be sure to do your own due diligence to determine which company is the best fit for you. Some companies tout low entry costs while others tout extensive product offerings, so think about what’s most important to you. We recommend asking potential providers:
Provider Safeguards
Rather than looking for the “best” company, consider which company provides the most transparent information and feels like the best fit for you. Beware of high-pressure sales tactics. Reputable companies should be happy to provide you with information and leave it up to you to make an informed decision.
Moving Retirement Funds
If you’re moving money from an existing retirement account to purchase gold/precious metals, we recommend conducting a direct transfer/rollover (also known as trustee-for-trustue transfer) in which funds are sent directly from one retirement account custodian to the other without you receiving the funds. With an indirect transfer/rollover, you receive the funds and have 60 days to deposit the money into another qualifying retirement account. If you miss the deadline, the funds will likely be considered a taxable distribution (and you could incur additional taxes/penalties, depending on your situation).
Retirement account fund transfers
Before initiating a transfer/rollover, check with your current custodian to determine:
Keep in mind that the price of gold/precious metals can fluctuate during the transfer process. If the transfer takes several weeks to process, will you still want to make the same investment allocation once the money is received? While market timing is never easy, it’s important to avoid costly (and potentially taxable) mistakes!
Allocation Decisions
When markets are volatile, it’s natural to want to park your money in an investment you believe will protect you from losses. But resist the urge to make investment decisions based on emotions, take a step back and consider how gold/precious metals fit into your overall investment strategy based on your:
- Income needs
- Tax situation
- Emergency fund
- Debts
- Retirement timeline
- Current asset allocation
Final Checklist
Rather than reacting to headlines, make a plan before initiating a transfer into a precious metals IRA by:
- Determining how gold/precious metals fit into your overall investment strategy
- Researching and understanding all fees/costs associated with investing in and storing gold/precious metals
- Requesting a statement from your current retirement account custodian
- Deciding whether you want to conduct a direct transfer/rollover (recommended)
- If an indirect transfer/rollover is an option for you, calendar the 60-day deadline in which you’ll need to contribute funds received into a qualifying retirement account
