Most people know of the tremendous value that IRA accounts offer. They enable you to save money for retirement in a tax-deferred or exempt manner. As such, they are a very popular and efficient investment product that helps people reach their retirement goals.
However, like most investment products these days, there are many variations to each investment product and an IRA is not an exception. A Gold IRA, for instance, allows you to buy gold into your IRA account (you actually buy gold) but may not be a suitable investment product for everyone.
Letís take a look at the pros and cons of a Gold IRA do you can see for yourself whether it may make sense to include as a complementary investment that will allow you to reach your retirement goals.
Investing in a Gold IRA is a long-term strategy
A traditional IRA account has paper or electronic assets that represent your investment holdings in stocks, bonds, and mutual funds. With a Gold IRA, however, you are actually buying the physical asset in the form of bullion coins and/or gold bars (or any of the 3 other IRA-approved precious metals).
Therefore, the storage and maintenance of a Gold IRA account incurs a significantly higher amount of fees vs the traditional IRA account. If youíre looking to make a short-term investment using a Gold IRA account, youíd probably be much better off investing in another product as youíll likely end up on the losing side of a trade.
Gold IRAs provide no dividend, interest or yield income
big part of the benefits of owning a traditional IRA is that your investment
income via dividends, interest or yield payments can accrue on a tax-exempt
basis. This allows you to benefit further from the effects or income
compounding as you pay no taxes while you save.
However, gold is considered a physical asset whose value can fluctuate according to market conditions. In other words, your investment in gold will increase as long as the price of gold or the other precious metals in your holdings appreciates.
Gold can provide a great hedge for your portfolio
Investment advisors usually advocate using a balanced combinations of stocks, bonds and even cash to keep for client portfolios. The general theory is that if stocks decline in value, your bond holdings will increase. Your cash, on the other hand, is like an emergency fund thatís used in case a tremendous opportunity pops up.
However, when the market crashes, all your investment holdings take a beating. Thankfully, gold actually has a negative correlation against the stock market. This means its price will increase as your stock market holdings decrease.
In this sense, gold can be used as a true hedging strategy against a potential decline in prices for stocks and bonds.
Investing in a Gold IRA may be more expensive than a traditional IRA, and you miss out on the powerful benefits of dividend reinvestments. However, when used as a complementary part of your retirement portfolio, the peace of mind it can provide is priceless.
Image credit: Gold IRA via Paul Brady Photography/Shutterstock