Today we discuss Gold IRA Investing. What is Gold IRA Investing and how does it work? Is it for you or should you use other methods to gain successful returns on your investment?
What does investing in a gold IRA mean? Simply put, you are choosing to turn a section of your retirement portfolio into gold. there has been a lot of debate about whether doing this is actually beneficial to an investor in any way. As you know already, not every IRA allows you to have gold as part of the investment assets. In this article, however, I will help you to get a clear understanding of the elements that characterize an IRA service provider which allows you to have gold in your retirement investment portfolio.
I will tackle a number of diverse facts and knowledge points on gold investments, but they will all add up and you will get a clear picture eventually.
Important to mention before we continue with this article:
We always strongly recommend doing your own research online before you choose a company to invest with. There are so many reviews online of clients being ripped off and scammed. So please investigate thoroughly before you make your decision.
With that being said, let´s continue with the article on What Gold IRA Investing is and how it works!
How gold prices behave
The prices of gold (per ounce) have been shifting quite significantly since August 1999. By then, a single ounce of gold cost $255. Fast forward to September 2011, we saw these prices rise to a high of $1839. As we speak, this price is a little dollars north of $1460. As you can see, gold prices have had significant movements, but overall, there has been some very significant growth.
Just to make it clear, a gold IRA allows investors to have the main precious metals invested in their portfolio. An investor can, therefore, have silver, platinum, and palladium invested through their IRA, and still have their retirement vehicle being referred to as a gold IRA. The term gold IRA is, therefore, a broad term that points to a retirement investment account that allows an investor to grow their wealth through investing in pure precious metals.
Gold IRAs saw the light of day way back in 1997 by Congress. This is according to Edmund C. Moy, a former director of the United States Mint. Edmund is known for having overseen the production of the largest amount of gold and silver coins in the entire world, during his reign as director.
The growth trend of gold IRAs
Investors who are looking for a diversified portfolio of investments are often the ones who are fascinated by the concept of having gold in their IRA. According to Moy, the prices of gold have been established to move in the opposite direction in comparison to paper assets.
This means that including gold in retirement investment portfolios is the best approach to the provision of insurance against the forces of the market such as inflation. This balanced approach, as Moy says, is very effective in the smoothing out of risks more so over the long-term investment horizons. Such a condition is, therefore, one that favors investment through an IRA.
At the time Edmund Moy was serving as director of the United States Mint, there was very little demand for gold, which was entirely attributed to the very complicated transaction process. This is a process that he discovered that only the most willing investors were willing to pursue. One has to find a custodian for their IRA, as well as an approved directory. The investor then goes ahead to purchase their preferred precious metal and organizes for their transfer to the depository so that the custodian can follow up and account for it.
The Great Recession of 2008 is the most significant financial crisis that most people who are alive at this moment can relate to. In the post-recession era, financial experts have established that the number of gold IRAs has significantly risen. This has been accompanied by record gold sales in conjunction with the sprouting of firms that focus on the simplification of processes revolving around gold IRA investments. The main result has been a very sharp rise in the number of gold IRAs on a global scope.
Moy also points out that economic and world news has been having a very significant impact on the nature of investments all over the world. The Federal Reserve stimulus programs and the geopolitical risks have been causing significant shake-ups in the world of investment.
The Rules that govern the existence of Gold IRAs
Daniell Sentell, a former director at Broad Financial, makes it clear that Gold IRAs can only exist as traditional or Roth IRAs. In either the IRA option, the gold can only be invested in the form of physical coins or bullion. Brett Gottlieb, an investment magnate and founder pf Comprehensive Advisor in Carlsbad asserts that as an investor seeking to diversify your portfolio, your main area of concern should be whether you want to invest in physical gold or gold-company paper assets.
If you decide to go with the physical gold, there are a couple of rules that you are required to withhold, including:
- The IRS fineness standards of your precious metals must be met.
- A designated custodian and not the IRA service provider must hold your precious metals.
- The physical gold should be stored in a specific IRS-approved depository (not in your home safe or other safety deposit boxes).
- You must uphold all rules related to the traditional and Roth IRA contributions, disbursements as well as taxation, as stipulated by the IRS.
How to find a reliable Custodian and Broker
It is necessary to establish a self-directed IRA for you to have gold included in your IRA portfolio. With a self-directed IRA or SDIRA, an investor manages the assets they own directly, and they are permitted to be in possession of a wide variety of investment products, even those that other IRA owners cannot be in possession of.
For the gold IRAs, you should identify a broker who can purchase the gold and a custodian who will create and administer your investment account. According to John Johnson, who is the president of Goldstar Trust, the custodian is in charge of holding the physical bullion.
Custodians are mostly one of the following:
– Trust companies
– Credit unions
– Brokerage firms
– Savings and loan associations.
For them to qualify to be custodians, they must be approved by the federal or state agencies. This is the way that these firms can get permission to offer asset-custody services to investors. The custodians are not responsible for the selection of a reliable precious metal dealer, but they may share a list of trustworthy dealers (not every custodian will offer this help).
The precious metal dealers may also decide to recommend a reliable custodian, but in both instances, an investor should do sufficient research to ensure that they end up with a firm that is reliable. Some of the main factors that Edmund Moy thinks you should consider when looking for a custodian include:
- Transparency – A reliable custodian should reveal all prices upfront.
- The qualifications – You should only trust a firm that is in possession of all the licenses and registration documents. You should ask for these details before opening your account.
- A track record of performance – you should look out for the custodian’s reputation on consumer trust sites such as Better Business Bureau and Business Consumer Alliance.
- Flexibility – You should only settle for an IRA custodian that offers custom-made solutions for every investor, as opposed to one that has a one-size-fits-all approach to business.
What should you expect when investing in a gold IRA?
There a couple of things that are unique to the gold IRA arena that those seeking to start putting their funds into precious metal should be aware of. These include:
1. Special costs
Owing to its lucrativeness, a gold IRA may come at some extra costs. Some of the main additional costs you should be aware of include:
- The seller’s fee – according to Sentell, although gold has the standard market price, the gold dealer you work with can sell you at a higher fee, but it is not an absurdly high price.
- IRA set up – most gold IRA service providers will ask for a one-time setup fee. This price varies from one company to another.
- Custodian fees – there are some fees that your custodian will require that you pay, such as annual maintenance fees and transaction fees.
- Storage fees – the storage facility owners will ask for a small fee for them to store your gold.
- Cash-out costs – depending on the period you have invested your gold coins or bullions through your IRA, you can end up incurring cash-out costs that eat into your profits significantly. Instead of selling your gold to a third-party dealer, reach out to your IRA service provider to see if they do gold buybacks.
Important to mention here:
Please make sure that you know exactly what fees are associated and exactly what you will end up paying for in the end before you sign anything. Most rip-offs take place with so-called “hidden fees” that the investor had no idea of until it came as a very unpleasant surprise after signing the papers, so please avoid that by knowing what exact fees you are going to pay before you make any decisions.
2. Gold IRA Rollovers
If you are already in possession of an IRA or a 401(k) both in the traditional and Roth options, it is possible to roll over the funds in those IRAs to a gold IRA. Fortunately enough, the rollover process is similar to that of other retirement funds. All you are required to do is to fill out an account application form and your account is established within 24 to 48 hours upon the receipt of your application.
On most occasions, the custodians involved in the transfer will do all the communication with each other and execute the transfer of the funds.
Generally, having a gold IRA will come with its unique rewards and risks. Like any other asset in the market, the prices of gold are bound to go up and down. Trends have however shown that gold is the most reliable asset with regards to stability over long-term investment horizons. Gold has due for this reason come to be identified as a store of value. Unlike bonds and stocks, whose value has gone to zero, gold cannot be worth zero at any given instance. The current shakeups in the global economy demand for one to have gold in their portfolio of investments since it is the only way to “insure” the value of their assets.
I hope you found this article on what Gold IRA Investing is to be helpful and that you now have a better understanding of the subject. Please share your questions and opinions below as I would love to reply back to you!
I wish you success!
Michael, founder of Gold Retired