When it comes to retirements, there is no shortage of ways to invest your money. Everyone has different financial goals and needs, but one thing is true: You should have a diverse portfolio of assets in order to hedge against a market downturn. That is where a Gold IRA comes in.
What Are IRAs?
IRAs, or Individual Retirement Accounts, are a financial instrument that is used for retirement. It is set up with a financial institution, such as a bank or brokerage firm. Account-holders will then make regular account contributions into the IRA.
The best part of IRAs may be their tax-advantaged status. The money put into IRAs are then invested in any number of financial options, but the gains are all tax-free. You only pay taxes on them when you withdraw them.
There are multiple types of IRAs, including:
- Traditional IRAs, in which the user makes contributions that can then be deducted on your tax return.
- Roth IRAs, in which users pay taxes on their contributions, but then withdraw them tax-free.
- SEP IRAs, which are IRAs set up for employees of smaller businesses.
One of the most critical parts of an IRA is making sure that it is diverse enough to protect you from market downturns. That’s where a Gold IRA comes in.
What Are Gold IRAs? Are They Worth the Investment?
No matter what type of IRA you have, there is a space for a Gold IRA. A gold IRA is an IRA that is made up of a variety of gold assets. It is an actual, physical asset and can come in many forms, including gold coins or bars.
Gold has many advantages that other asset classes simply do not have.
First, they are fantastic for diversifying your portfolio. When the market turns down or the economy is in trouble, investors typically put their money in safe asset classes, like precious metals – and specifically gold. In other words, gold can help protect your retirement funds from a market downturn. As a result, you can be sure to minimize overall losses by purchasing this type of asset.
Gold is critical for diversification for exactly this reason. Remember, the goal of a diverse portfolio is to ensure that you can protect your assets against loss and ensure that you aren’t too heavily invested in one sector. That is one of the many things that make Gold IRAs worth the investment.
Furthermore, gold is known for holding its value. Gold is known for growing steadily over time, and even more so in moments of economic crisis or panic. Indeed, gold’s rate of growth has actually outpaced that of many markets over time. As such, gold provides many things that other asset classes cannot: Steady growth that can also protect you from market downturns.
Last, gold is a fantastic hedge against inflation. Gold is a precious metal. This means that there won’t be a massive influx of new supply on the market that can make gold lose its value. As such, you can be sure that an investment in gold will maintain its worth and grow, even if inflation occurs.
What is the Risk of Gold IRAs?
As noted above, one of the best aspects of gold IRAs is that they are actually good from a risk perspective. According to thegold IRA guide put together by Goldco, “…one of gold’s greatest assets is that it holds its value.” Gold doesn’t change in price the way the rest of the stock market does, and its gains tend to be more stable and its losses more minimal. This is particularly the case during times when the market is fluctuating wildly.
The only real risk to growth is opportunity cost: It is possible that money invested in gold may perform better, in the short term, than gold. However, it’s important to remember that the point of a gold investment is to keep your portfolio safe and diverse. As such, this “risk” represents a misunderstanding of gold’s role in your portfolio.
At the end of the day, you should make sure you speak with your financial advisor in order to determine retirement goals, timelines, and risk tolerance. However, no matter what, at least one piece of advice will likely be the same: Have a diverse portfolio. Gold can be incredibly helpful in this regard, as it can protect you against market losses, provide an alternative to paper stocks, and help to ensure that market downturns don’t decimate your portfolio.