When it comes to retirement, you have to prepare for it or you may end up regretting not doing so in the end. Because people are thinking about how their retirement years will be spent, there are now so many alternative retirement plans.
One retirement investment plan that has been in the spotlight in recent times is gold IRA. For long, precious metals have been seen as a safe-haven asset that protects investors from economic troubling times. If you have made up your mind to get a gold IRA, then you need a company for that. You can check this inquirer.net gold IRA company article to learn more about selecting the right gold IRA company.
If you are still on the fence regarding it all, then we are here for you. We can’t specifically tell you whether or not a gold individual retirement plan is the right choice for you. But, you know what we can do? We can tell you some benefits and drawbacks of the plan.
When you know these advantages and disadvantages, you can easily weigh them and then come to a conclusion based on your evaluation.
Table of contents
Advantages of Gold IRA
The following are some of the major advantages an investor stands to gain when they invest in a precious metal IRA:
The security that comes with having a precious metal IRA is perhaps the biggest benefit of it. When you choose this plan, you subconsciously develop a feeling of control over the unknown and you can sleep better knowing your wealth is preserved.
Throughout history, precious metals have been considered a haven when it comes to economic and even political troubles. So, you will feel more in control when you have some part of your retirement funds invested in them. This is because you will become certain that your asset’s value will be intact even during inflation.
Gold has either outperformed or kept the pace with the inflation rate in the past and it doesn’t look like it would change from doing this anytime soon. Let paint a scenario. Let us assume that in 1917, a piece of gold and a beautiful dress were both valued at 30 dollars each.
Now, fast forward to today, that same piece of gold worth 30 dollars has risen in value so much. However, a beautiful dress can’t be sold at the same price because inflation has devalued the fiat currency.
Some investors will get a combination of bonds and stocks and feel like that is enough portfolio diversification. We hate to break it to you though that these assets are very much interrelated. You can visit https://www.sapling.com/4690191/what-similarities-between-stocks-bonds to learn the similarities between bonds and stocks.
But with gold, you get an asset that is highly uncorrelated with other assets and it certainly doesn’t decline with either bonds or stocks. Having precious metal in your investment portfolio is one of the best means of diversifying your portfolio.
This asset tends to give you a proper hedge again asset classes like bonds and stocks which are considered main classes of assets. The stock market can crash so bad that 50 to 60% may burn but gold won’t crash to the point where it is worth nothing because it has its intrinsic value.
3. Acts as Disaster Insurance
Investments can crash at any point. If you can insure your health, home, car, and so on against unforeseen events, then you also need to insure your finances against unforeseen threats. Nobody can predict what will happen in a few months to come.
But, you can protect yourself from it regardless. When there are geopolitical dangers like war and economic issues like inflation and depression, your gold IRA can provide that soft landing you need.
The ability of this asset to retain value despite economic and/or political upheaval will make sure your finances are protected despite the crises.
4. Reduces Investor’s Tax Burden
Precious metals held in IRAs are usually very tax-efficient, in that they aren’t taxable so far they aren’t sold. Taxes are also not imposed on the gains an investor gets from the investment while the profits remain in the IRA. This is still the case even if the asset has been liquidated.
Disadvantages of Gold IRA
The following are some of the major disadvantages an investor stands to gain when they invest in a precious metal IRA:
1. You Don’t Have Access to Your Asset
You’ll know that your asset is secure in a depository, if you insist, you will be given the contact info and address of the depository. You will also be given documentation to prove that you are the owner of the asset. But that is about where it stops.
You won’t be given access to examine the asset. The administrator of your account will be the one in charge. Hence, you have to put in a lot of effort to ensure that both the custodian and depository you choose are reliable and trustworthy.
The reason you can’t hold your asset by yourself is that since it was bought with IRA funds, the IRS considers it as a collectible. You can read this to learn more about what collectibles are.
Some depositories allow investors to examine the storage in advance for a fee. If you wouldn’t be comfortable leaving the whole thing to your custodian, you can opt to do this.
2. There is No Interest or Dividends
Unlike stocks that pay dividends and bonds that pay interest, gold IRAs don’t offer any of these. You can only hope that your assets increase value via capital appreciation. Hence, this option may not be the right choice for anyone hoping to grow their retirement funds.
In this article, we have discussed some benefits and drawbacks to help you decide if you are still torn between investing in a gold IRA or not.