Why is gold a good investment for retirement? You may have already come across several companies marketing gold investments to you, but you are not sure if this shiny metal is truly worth it. In today’s article, I will present to you some of the reasons that gold investors cite for their choice of this asset. Read on till the end of the post, to establish whether gold is worth holding on to as a retirement investment asset.
If you are trying to see to it that your retirement investment portfolio stays in the best shape throughout your retirement years, then adding some gold to it is one of the perfect ways to meet your objectives. This shiny metal is a finite rarity that many around the world crave, and it has in its purest form, come to be perceived as a straightforward way to store one’s wealth securely over the long-term horizon.
You will actually come across well-respected investment pundits and financial advisors who always recommend that gold be included in every retirement fund owing to its unique benefits, which we shall dive into, in the next section.
1. Portfolio diversification
Most people are gradually learning about the risks of having retirement plans that are overly focused on paper assets. Following the global financial crisis, many people have become very cautious about the type of assets that they hold in their portfolios, and are increasingly trying to add assets that protect them from the downsides of an economic downturn.
Investment theory suggests that assets such as gold provide a low or negative correlation to paper assets such as stocks and bonds. Adding gold to your retirement investment portfolio is, as such, a perfect way to balance it, as you also seek to reduce the volatility and risk associated with it.
A call to diversify your retirement investment portfolio should not be misinterpreted as a call to pour all your money into gold assets. It is advisable to hold only about 5% to 15% of your assets in gold.
2. The low-risk bullion market is quite simple and straightforward
There are several ways to invest in gold, but the simplest and possibly least speculative approach is to directly invest in gold bullion. Using a gold individual retirement account (Gold IRA) is one of the ways you can invest in gold bullion/physical gold. You simply need to establish contact with a gold IRA custodian for them to give you the steps you need to follow for you to have a fully operational account.
The good thing about having a gold IRA is that it allows you to also invest in other types of precious metals including silver, platinum, and palladium, but they must all be the IRA-approved variety before you can be allowed to add them to your account.
More and more Americans are tapping into the low-risk bullion market, with the objective of safeguarding the funds that they hope to enjoy during their retirement years.
3. Preserving your current wealth using gold as your safe haven
A retirement investment portfolio is supposed to safely grow, preserving your hard-earned capital until the time to retire comes, so that you can love the rest of your life as comfortably as possible.
Many financial advisors urge their clients to create a balanced portfolio of assets, containing a variety of assets, including:
- Few risky, high return assets
- Low-risk blue-chip stocks
- Low-risk assets such as precious metals ( e.g. gold)
While gold is traditionally perceived to be the oldest form of valuable money still in existence, this yellow metal, unlike paper money, cannot be printed, and hence cannot be debased. When you decide to store your wealth in gold, you are choosing to tie your money to an asset that historically holds its value safely. Physical gold, the price of which has mostly been found to rise during economic crises, has also been found to be a suitable hedge against:
In 2001, an ounce of gold was worth about $270. As of May 2022, an ounce of gold is worth $1850+, which accounts for a price increase of about 600%. While the price of gold has not simply risen steadily ( it has had its ups and downs), one thing is certain, and that is that gold is an asset worth owning during times of economic turbulence, such as during global financial crises. It seems, at times, as if the price of gold feeds on economic calamities.
Investors seem to have rediscovered their go-to safe haven when their colleagues are trying to wrap their heads around complex investment products such as derivatives. Against the complex products, gold shines and gives investors the certainty they need to go through the tough economic seasons.
N.B: The price of gold can be volatile over the short-term horizon, but gold has historically proven to maintain its value over the long-term horizon.
5. Gold is a finite rarity
Gold is a necessary raw material in various industries in the world. The world craves this precious metal. Less and less of it is however being discovered and mined around the world. Even the largest producer of gold in the world, South Africa, has been experiencing a significant output of this shiny metal as time goes by.
Meanwhile, the quantity of the “above-ground” gold” is increasing by roughly 1.6% per year. Gold is, as such, a finite resource, which is something that contributes to its perceived value and assures the investors who hold it that it is an asset worth holding for their retirement.
Frequently Asked Questions on “why gold is a good investment for retirees”
1. How do assets such as silver and cryptocurrencies compare to gold?
Between the two, silver is more similar to gold than cryptos, but the three assets share a common trait in that they are inflation hedges. This is, of course, subject to debate, but the general trend has been that these assets have a low or negative correlation to other assets. Also, while gold and silver are tangible, cryptos are much newer assets and their viability as a hedge is more on the speculative side.
2. Is purchasing Gold stocks the same as buying physical gold?
To some extent, yes. From the average investor’s standpoint, purchasing gold shares may be similar to purchasing gold. In most cases, gold shares usually replicate the price movements of gold in the market. It is, however, important to understand that gold shares do not give you the ownership of physical gold, thus you can’t trade in the stocks for gold coins or bars.
Also, gold shares are affected by other factors that do not affect physical gold, hence investing in them may end up giving a different result.
3. How much gold can you purchase for retirement investment?
As much as you want to. This entirely depends on the amount of money at your disposal and the nature of your investment account. If you are using a gold IRA, the amount of gold you can purchase may be limited by the amount of money you manage to roll over into your account.
4. How can I invest in gold for retirement?
There are many different ways to invest in gold for retirement. One of the most common ways is to open a gold IRA and add the shiny metal to your portfolio. An alternative to this approach is to purchase gold-based paper assets such as mining stocks, ETFs, and mutual funds. If you are a risk-lover, then you can try the more speculative forms of gold investments such as gold futures and options. Generally, however, investors are advised to stay away from speculative assets as they near, or during retirement.
I hope you enjoyed reading this article on why gold is a good investment for retirement. If you found it helpful, then go ahead and share it to your socials, so that your friends and family members can also learn a thing or two about gold investments for retirement. If you have any questions about this post, drop them in the comments section and I will get back to you ASAP.
I wish you well,
Eric, Investor and Team Member at Gold Retired!