How To Invest in Precious Metals with a Gold IRA
Gold hit a new record in 2020. Riding a wave of financial turbulence, it reached $2,000 and is now sitting at $1,850. Due to these numbers, many investors have been looking at gold as a valuable alternative asset, especially as a hedge against the market. For those investing their retirement funds, this means opening a Gold IRA.
What is a Gold IRA?
Standard IRAs do not allow you to own physical precious metals. However, a Gold IRA is a self directed investment vehicle that allows account holders to invest their retirement funds in physical gold, silver, platinum, and palladium.
Is Gold a Good Asset for a Retirement Fund?
Obviously, nobody can predict the future prices of various assets. The go-to move is to speak with your financial advisor and see if gold makes sense for your long-term plans. Here’s a quick rundown of the pros and cons that can help steer that conversation.
There are two main benefits of holding Gold in your IRA:
- Diversification – Asset diversification is key to investment success. Having gold in your IRA (in addition to stocks and other market products), creates a diversified portfolio that protects your retirement funds from fluctuation. The more balanced your portfolio, the more you are able to minimize your investment risk.
- Hedge Against the Stock Market – Typically, the price of gold moves in the opposite direction of stocks. As stock price decreases, investors often panic and buy a “safe” and tangible asset such as gold. Therefore, having gold in an IRA provides an insurance policy against inflation and can never reach zero dollars in value.
On the other hand, you should consider several factors before investing in gold:
- Fees – There are many services that are fee-oriented. This includes fees for setting up the account, maintaining the account, performing transactions, and storing the precious metals. If a custodian claims they are “fee-free”, they are most likely marking up the price of the physical gold to compensate.
- Custodian Rating – Just like any company, each custodian has different levels of service and support. Be sure to read the online reviews for the custodian you may work with.
- Flexibility – Typically, investors desire the freedom to choose what they invest in and when. However, some Gold IRAs are linked to specific dealers. This means that you do not have the choice of where you will purchase the gold, nor the price you will pay for it. Certain Gold IRAs may also limit you to only purchasing gold, as opposed to additional alternative assets. Madison lets you decide. You have the freedom to choose your dealer, as well as invest in other alternative assets.
Is a Gold IRA for me?
When deciding if gold is the right investment for you, ask yourself the following questions:
- Does my investment portfolio match my risk tolerance and time horizon?
- Is gold the ideal asset for what I am trying to accomplish, or would a different alternative asset (e.g. real estate) be more appropriate?
Once you decide that gold would play a positive role in your portfolio, it’s time to get practical.
How much gold should I invest in?
If you choose to invest in gold, invest conservatively. Typically, it is recommended to hold no more than 5-10% of your retirement funds in precious metals. This depends on your financial situation and risk tolerance. Remember, a well-designed portfolio is diversified. Do not take on unnecessary risk by investing in only one type of asset.
What Type of Precious Metals Can I Invest In?
With a Gold IRA you may invest in gold, silver, platinum, or palladium. However, you cannot invest in just any gold, silver, platinum, or palladium. There are specific IRS standards that your precious metals must meet.
Minimum Fineness Requirements:
- Gold 99.5% pure
- Silver 99.9% pure
- Platinum 99.95% pure
- Palladium 99.95% pure
A few metals that meet this requirement include American Eagle coins, Canadian Maple Leaf coins, Australian Koala bullion coins, and the Austrian Philharmonic.
The Madison Advantage
Madison’s precious metals retirement account gives investors the freedom to choose the asset of their choice. If you choose to purchase gold, you can do so with any dealer and at the price you decide. Self-direction is about optimizing your investments, and the ability to choose goes a long way with precious metals.