Does investing in Gold make sense
When we want to decide whether a Gold IRA Investment makes sense or not, we have to first define what “good Investment” means.
You and I, along with every other investor, have unique Investment preferences, time horizons, and tolerances for risk. A “good” Investment for you might not be a “good” Investment for me and vice-versa.
Deciding what a “good” Investment looks like is also closely tied to our outlook on the economic future.
An investor who believes that Inflation is the most significant factor in their Investment decisions may define a different “good Investment” than the investor who thinks Inflation is a transitory phenomenon.
Because there are an infinite number of variables in the ‘Good Investment or not’ question this article will focus on a hypothetical Investor who has one or more tax advantaged retirement accounts (IRA, 401k, 403b, TSP, etc.). Their Investment Portfolio consists of Stocks, ETFs, and Mutual funds.
This investor has assessed the economic future and decided that these are the major factors they need to address in their Investment Portfolio:
For all of these reasons our theoretical investor has decided that Gold, while it may or may not be a “good” Investment, is the only Investment that makes sense in the current economic environment. Instead of focusing on making a “good” Investment our investor is focused on the financial security that Precious metals have always represented.
In other words, this investor has decided that a “good Investment” at this point in time has more to do with financial protection than it does with trying to increase their net worth through investing. They are choosing to focus on a return OF their Investment rather than a return ON their Investment.
Based on their assessment of the economic future and the current economic environment, our hypothetical investor reaches the conclusion that it does make sense to invest in Gold at the current time.
Having reached this decision, our investor is ready to purchase Precious metals but still has some decisions to make.
Ideal Precious metals Portfolio
The ideal Silver and Gold Portfolio is built on a foundation of physical metal that the Investor has easy access to. The metal can be stored in a local vaulting facility (in larger cities), a home safe, or a hole dug in the back yard.
These personally-held Precious metals form the foundation of an ideal Portfolio and they are purchased with after-tax income outside of any tax-favored retirement account.
After taking personal possession of some physical Silver and Gold we can then build the rest of our Precious metals Portfolio using tax-advantaged funds from our retirement savings. Self-directed Precious metals IRAs (also known as Gold IRAs) give us a way to purchase physical Silver and Gold using our existing retirement savings.
What is a Gold IRA rollover
In a Gold IRA rollover you take funds from a qualifying Retirement account (IRA, 401k, 403b, 457, TSP, etc.) and “roll them over” to a Gold IRA account.
The IRS allows us to move retirement money from one account to another without taxes or penalties but we can only perform a single move in any given tax year. As long as account types are maintained there are no tax consequences from performing an IRA rollover.
Account type refers to tax-deferred vs tax-exempt. Funds from a Roth IRA (tax-exempt) can only fund a Gold Roth IRA and funds from a Traditional IRA (or 401k, etc.) (tax-deferred) can only fund a Traditional Gold IRA.
The term “rollover” is often used generically to refer to both rollovers and transfers. There is a key difference between an account rollover and an account transfer but each process accomplishes the same objective: moving existing retirement savings into the Gold IRA account.
When an account is rolled over the Investor never personally receives their retirement funds. Instead, the money is transferred directly from one account to another.
In an account transfer the Investor takes a distribution from their retirement account and personally receives a check or wire transfer. The distributed funds have to be deposited into another IRS-approved retirement account within 60 days.
Any funds that aren’t redeposited within 60 days will be treated as normal income by the IRS and early withdrawal fees will be assessed on Investors under the age of 59 ½.The 60-day countdown and potential penalty can be avoided by performing a rollover instead of a transfer.
Roth Gold IRA vs Traditional Gold IRA
Roth IRAs are typically used when an investor believes their taxes will be higher in retirement than they are today.
A Traditional Precious metals IRA appeals to Investors who expect their tax rate to be lower during retirement. Pre-tax income is set aside today with the expectation that is will be distributed at a lower tax rate during retirement.
Gold IRA Pros and Cons
Like all Investments, Gold IRAs have pros and cons.
As mentioned above, the ideal way to own Precious metals is to use after-tax money for the purchase and then take personal possession.
Gold IRAs, while not ideal, provide the only way to purchase Precious metals using tax-advantaged retirement savings.
How does a Gold IRA work
These Gold IRA tax rules help explain how a Gold IRA works:
Gold IRA reviews
Picking a Gold IRA company to work with can be a daunting task. There are numerous companies to choose from and they all claim to be the best.
A good place to start your research on candidate Gold IRA companies is the online customer reviews that are gathered by these companies:
These reviews are written by actual customers whose experience with the given company was either good enough or bad enough that it motivated them to write a review. Seeing what they have to say is well worth the time spent.
We want to see that most of the reviews about a company are positive. If there are negative reviews we want to see a response from the company indicating their attempt to resolve the issue.
Negative reviews can be particularly informative because they demonstrate how a Gold IRA company works (or doesn’t work) to keep their clients happy. There is nothing wrong with a negative review as long as the company is working to resolve the issue.
After reading Gold IRA reviews for several companies you may notice that most of the negative reviews involve customers who purchased proof Coins and subsequently lost money when they liquidated their account. You can avoid this potential scenario quite simply – do not buy proof or special edition Coins inside an IRA.
In this short article we used a theoretical investor to illustrate that it does make sense to invest in Gold today.
All investors can benefit from allocating a small percentage of their Investment Portfolio towards Precious metals. Portfolio models show that the traditional 60/40 Portfolio of Stocks and Bonds will perform better throughout all market cycles with a 3% to 10% allocation of Gold.
An ideal Precious metals Portfolio is built on a foundation of physical metal that the investor has personal control of.
With that foundation in place, Gold IRAs make sense for investors who want additional exposure to physical Silver and Gold.
Tax-deferred retirement funds (IRA, 401k, 403b, TSP, etc.) are essentially stuck inside some kind of IRS-approved account until you reach age 59 ½. Moving some of these funds into a Precious metals IRA provides diversification and protection for your overall Investment Portfolio.
Hopefully this missive has helped you decide that it does make sense to invest in Gold. The only question is how you, personally, want to make your Investment. You are invited to explore all of the resource here on the Satori Traders website as you continue your Investment journey.
About Satori Traders
Satori Traders LLC is a California-registered Investment Advisor specializing in the Precious metals.
Bryan V Post is a California-registered Investment Advisor Representative and the founder of Satori Traders.
Bryan has worn numerous hats during his life: Engineer, Portfolio manager, Precious metals Investor, Technical analyst, Proprietary trader, Swing trader.