With more than half of Americans (55%) feeling like they’ve fallen behind on saving for retirement, incorporating physical precious metal assets in their portfolio may be able to help maximize the returns their investments earn — and it doesn’t have to cost an excessive amount, according to experienced precious metals professional Kevin DeMeritt.
Relying primarily on traditional IRA-based investments isn’t uncommon; research conducted by the Federal Reserve found defined-contribution 401(k) or 403(b) plans are the most frequent ways of financially preparing for retirement in the U.S.
However, because traditional IRAs often involve a mix of stocks, bonds, and mutual funds, your investments can be heavily affected by any market declines — something that hasn’t been an unusual occurrence this year.
In the first half of 2022, the S&P 500 decreased more than 20%. The Dow Jones Industrial Average shed in excess of 14%, and the Nasdaq’s decline totaled more than 28%. All three indexes slid into a bear market at various times, indicating they had dropped at least 20% from their previous high points.
Unfortunately, we may not have seen the last of this year’s market declines just yet, according to Kevin DeMeritt, who is the founder and chairman of California-based precious metals firm Lear Capital.
“Everybody was thinking in 1978, when inflation was 8%, like we see today, ‘When is this all going to end?’” DeMeritt says. “[Interest rates then] went all the way up to 14% and 15%, almost double where they were in 1978. We may only be halfway to the top, if inflation plays out like it did in the ’80s.”
The Benefits of Investing in Precious Metals
As inflation ticked upward in the late 1970s, business investment activity in the U.S. subsequently lessened, according to Federal Reserve documentation. Gold and silver prices at the time, though, actually rose dramatically, with gold soaring 147% and silver’s value climbing 557%, according to Lear Capital data — a not entirely unheard-of scenario, Kevin DeMeritt says.
“If you look at gold, it’s dramatically outproduced the stock market since 2000,” he says. “Gold has an inverse relationship to stocks and other types of assets. You need to look for that asset that’s going to give you the stability and offset the volatility from some of the other areas.”
Regardless of political, economic, or other upsets, silver and gold prices have increased fairly consistently over the past two decades, according to the National Mining Association — including prices for premium precious metal coins, which Lear Capital research found have remained strong throughout the 15 recessions the U.S. has experienced since 1919.
This year, as stock market uncertainty took hold, investors’ appetite for investing in gold grew, according to U.S. News & World Report, which noted in a June article that spot gold prices — essentially indicating the cost of 1 troy ounce of gold within global markets — surpassed $2,000 in March.
Although some investors may believe gold, silver, and platinum investments would be far outside of their personal investment budget, physical precious metal assets can be surprisingly affordable, Kevin DeMeritt says — particularly when judiciously factored into an investment plan.
“Gold is trading at around $1,800 per ounce today,” he says. “So if you wanted to purchase a 1/10th-ounce gold coin, it would go for around $180 today.”
Silver, which costs even less — approximately $23.50 an ounce as of Dec. 12 — may be an even more favorable option to start with, DeMeritt says. Then, over time, you could work your way up to owning gold.
“A lot of people talk about gold, and silver’s a little bit of an afterthought,” he says. “You really can’t have solar [panels] without some silver in [them]. Because there’s this drive for green energy around the world, solar has grown; so has the demand for silver. It’s very difficult for us as dealers right now to actually go out and get silver bars and silver coins in big quantities because the solar industry’s using it; the electric car batteries are using silver.”
The key to precious metal-related investing, DeMeritt says, is to gradually accumulate assets — potentially beginning with 10% gold, for example, in a portfolio.
“Start off small,” he says. “You don’t have to start with a large amount; start with what you feel comfortable with. Get an education over time. It’s better to cost average in almost any investment, anyway; just start accumulating every time you buy some stock [by saying], ‘I’m going to buy some precious metals.’”
How Investing in Precious Metals Works
Assets such as gold coins or silver bars, pending some qualifications, can potentially be utilized as an investment through a self-directed IRA. However, several considerations apply.
First, specific varieties and quality levels are required. Only certain types of precious metals can be part of a self-directed IRA. (For a summary of metals that are currently available for sale, view the list on Lear Capital’s site.) Some items have to possess a specified parts per thousand qualification.
“The government has made these rules that it has to have a fineness to it,” Kevin DeMeritt explains. “If it has that quality, then you can add it to an IRA; if it does not, then you cannot — with the one exception being an American Eagle [coin], which the government made an exception [for].”
For gold bars and rounds, the minimum fineness is 0.995. For silver, the required level is 0.999 or above.
Second, you can’t retain physical possession of the investment asset. You own the purchased coin or other precious metal items, but it must be stored remotely at an IRS-approved, insured private storage facility. Precious metals purchased from Lear Capital, for instance, are kept in a vault at the Delaware Depository, which has been the industry leader in safeguarding precious metals since 1999.
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And third, you will eventually need to arrange access to your investment. When Lear Capital account holders reach retirement age, they simply have to let their IRA account manager know whether they’d prefer to have their physical precious metal assets shipped directly to them, or if they’d like to receive cash for them.
Lear Capital will arrange for the assets to be sent from the Delaware Depository or liquidated — in which case a cash distribution is processed, generally in about a day, and then wired to a bank account; alternately, a check for the asset can be sent to the investment holder.