IRAs and Gold: Do They Mix?

When choosing investments for your IRA, gold presents you with a unique investment option. Many investors have taken to gold as a part of their portfolios due to volatility in the stock market. Here are the basics of including gold in your IRA investments and whether you should consider it.

How It Works

With your IRA funds, you are free to make many different types of investments. If you want to get involved in gold investing, there are a few different ways to do so. One way that you could get involved is to buy shares in a gold ETF. This is kind of like a mutual fund that uses gold as the primary asset in its basket. Another way to invest in gold would be to buy paper contracts from a provider. With this method, you do not actually store the gold. An investment company does it for you. You are given documentation that says you own a certain amount of gold. You could also buy gold bullion and take possession of it yourself. 

Pros 

  • Low correlation--Gold has a low correlation to other types of investments and financial markets. Many investors are used to their investments being highly correlated to each other. If you own shares of stock in a company, it could be affected by many other factors besides the company itself. Gold, however, tends to be independent of other factors. Therefore, even if every other market goes down, it does not necessarily mean that gold will follow suit.
  • Constant value--Gold is a universal currency that will always be worth something. Even if the value of the gold goes down, it will never go down to nothing. There will always be someone willing to pay something for it. When you buy stocks, though, you could potentially lose all of your investment money overnight. 
  • Price continues to rise--The price of gold has continued to climb slowly over the years. All indications point to that trend's continuing. 

Cons

  • Scams--There are many investment companies out there that do not actually have the gold that they are selling the rights to. They are not housing it in a secure facility but just telling you that they are. Therefore, the paper that they are giving you may not actually be worth anything. 
  • Theft--When dealing with a physical asset, you always have to consider the possibility of theft. The theft could occur from the company itself or from a third party. When you deal with stocks or bonds, this is not really an issue. You can track a paper trail and prove that the assets are registered to you. Someone could theoretically break in and take gold. Then the value of your investment could be reduced to nothing if the company was not properly insured for the loss. 
blog comments powered by Disqus