G old IRAs (or precious metal IRAs) have become increasingly popular in recent years. Since their introduction way back in 1998, the Gold IRA had been frowned upon, almost similar to the way investors look at the Bitcoin IRA right now. However, the financial crisis of 2008 that started with the collapse of Lehman Brothers, has opened so many eyes that investors now fully embrace this investment vehicle. And it’s easy to see why.
Physical gold is a highly reliable and trustworthy asset, and is therefore a safeguard against today’s monetary turmoil. Buying precious metals into a self-directed IRA can help protect your retirement savings and can increase your return on investment. A precious metal IRA can include IRS approved gold, silver, platinum, and palladium. Let’s take a closer look at some of its key benefits.
We cannot overemphasise this enough: diversity is crucial for any individual’s portfolio, especially when you are planning for retirement. Precious metal IRAs allow you to store assets seldomly found in employer-sponsored 401(k) and traditional IRAs. This means you can greatly reduce the overall risk to your retirement savings, by diversifying assets away from paper. That is why you should not put all of your nest eggs in one paper basket. An adequate amount of gold in a balanced retirement portfolio can considerably reduce your overall portfolio volatility.
Protection against the stock market
By adding gold and silver to your retirement account, you limit exposure from Wall Street. When the stock market collapses, even the so-called safest mutual funds and bonds can take a severe hit and retirement savings can evaporate overnight. God forbid, but if this happens to you (as it did to many people during the Great Recession), you may be forced to continue working after retirement age. Having physical ownership of precious metals creates a hedge against economic downturn.
Hedge against inflation and a weak dollar
Buying gold into a self-directed IRA can help safeguard your money against inflation and preserve your buying power in retirement. If the US federal government prints its way out of its horrendous debt, your dollars will be worth less than they are today. This means you can buy less goods and services for the same amount of dollars. Gold, on the other hand, works as a hedge because it tends to increase as the dollar drops. Precious metals give peace of mind about your buying power, especially in times of inflation and a declining dollar.
Probably the biggest advantage of owning gold is its growth potential, especially in the long term. Gold has steadily increased in value by almost 400% since the year 2000. As finite resources, gold, silver, palladium and platinum have intrinsic value and an ever-increasing global demand. Of all the assets you could own, precious metals have a proven record of maintaining their value. Because of this, a precious metals IRA will suit virtually any retirement savings portfolio.
Last but not least, a Gold IRA (or self-directed IRA) enjoys the same tax benefits as a traditional IRA or 401(k). In general, your contributions are tax deferred. This means you pay no tax on your retirement savings account until you take a withdrawal. A tax deferred investment can give your money more opportunity to compound and grow. On top of that, you may be in a lower tax bracket when you withdraw the money than you are now, resulting in paying less tax.