Why a Gold IRA?
Including gold, and other precious metals, into your IRA portfolio may be a necessary means of protecting the value of your assets. Should your investments in the stock market tank, the chances are good that your precious metals will hold their value, if not increase in this scenario.
The following are the top reasons to include Gold in your portfolio:
Why Gold?
Below are the top reasons why people choose to diversify with gold:
Economic safety: If the stock market crashes, having part of your investments in gold may protect you from significant losses. This is especially important to consider if you are nearing retirement.
Inflation defense: Your purchasing power drops as the value of the US dollar drops. Having gold in your portfolio can protect you as gold has out-performed the value of the dollar historically.
Portfolio diversification: Having all of your money in a single investment class (such as stock and bonds) can open you up to significant risk. Diversifying your portfolio to include gold, such as in a Gold IRA, may be an important step to protecting your nest egg.
Deflation protection: Deflation is a period of time when there is a decline in business activity, a decrease in prices, and the economy has excessive debt. The last time this happened was the Great Depression. During that time, gold soared while other prices decreased significantly. Gold was the safest place to hold cash during the Depression.
Geopolitical and financial crises: Gold is often called the “crisis commodity”. When crises emerge in the world, consumers often flee to gold for its relative safety as it typically outperforms other asset classes during these times.
Furthermore the gold price typically increases when there is a financial crisis.
This graph shows the little wobble the stock market had around the time of the Presidential election - when it became clear Donald Trump was going to win.
The top graph is the S&P500, the bottom graph is the gold price. Notice how gold rises as the stock market falls in almost exactly the opposite (inverse) direction. It did not fall much but it fell quickly. A position in gold would compensate for losses made on such stocks.
How does Gold perform when the stock market crashes?
Gold almost always increases during significant stock market declines. One way to illustrate this is by comparing gold's performance with the S&P 500. This infographic and analysis of gold prices during stock market crashes shows the 10 largest stock market declines and the performance of gold during the same time period. As this data clearly shows, gold increased significantly during most of these times, and outperformed the S&P in all but one.
What is a Gold IRA Rollover?
So now you understand that gold, and precious metals, are important assets to have in your nest egg. However, a Gold IRA rollover may not be something that you’ve heretofore considered. An IRA rollover is a method of swapping some of the contents of one savings plan, with another. You may hold excess cash or stocks in an account, and want to convert some of these to gold. Here, the person looking after the stocks savings plan, sells some, and buys gold with the proceeds. The gold is then put into the Gold IRA savings plan. This savings plan is then guarded by another custodian specializing in precious metals.
How do you fund a Gold IRA?
You have 2 options to fund a Gold IRA.
- If you have a 401(k), 403b, 457b, Roth IRA, SEP, TSP, annuities, or pension plans with a previous employer you can rollover or transfer those funds or a portion of those funds into your Gold IRA account.
- You can contribute directly to your established Gold IRA account up to $7K per year depending on your age.
You can withdraw from your Gold IRA at any point. However, if you make withdrawals before reaching the age of 59.5 there will be a 10% penalty. There are more aspects of Gold IRA to understand such as different eligibility rules, tax brackets and ways of withdrawing your money. It is recommended you discuss the details with a Gold IRA rollover specialist to help determine your best options.
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