That old saying, “Don’t put all your eggs in one basket,” is especially true when it comes to retirement planning. Hedging your bets fully on traditional investments such as stocks and bonds could come back to bite you should the market take a nosedive in your golden years. That’s why smart investors know that diversification is the name of the game.
In this guide, you’ll learn about the benefits of precious metals in a diversified retirement portfolio, tips for incorporating precious metals into your portfolio, and how to set up a precious metals IRA.
Understanding Portfolio Diversification
Suppose you created your retirement portfolio decades ago, packing it solely with stocks in hopes that they’d explode in value. Now, you’re approaching retirement age and getting ready to cash in on those stocks. But what would happen if the market crashes and those stocks lose their value?
This scenario is a big reason why diversification matters. By choosing a diverse collection of investments, you’ll mitigate risk and potentially increase your returns.
Benefits of Including Precious Metals in Retirement Portfolios
Financial experts often recommend diversifying your retirement portfolio with precious metals, but why is that so? Precious metals such as gold and silver offer benefits like these:
- Precious metals tend to serve as an inflation hedge. Generally, when the value of paper money decreases, the value of precious metals stays the same or even increases. Holding precious metals in your portfolio could help protect your retirement funds in a dismal economy.
- The performance of precious metals is typically independent of that of stocks and bonds. That means even if a stock’s value swings wildly, it likely won’t affect the value of your precious metals.
- Unlike paper money, gold and silver have tangible uses and intrinsic value. Gold, for example, is used in electronics, jewelry, medicine, and dentistry.
- Precious metals, most notably gold, have a strong track record of maintaining their value over time.
Best Precious Metals for Retirement Investment
You’re interested in including precious metals in a diversified retirement portfolio, but which metals should you choose? Gold is the top pick for many investors, and for good reason. Its value tends to remain stable, and as mentioned above, it has many uses, so it’ll always be in demand. Plus, it’s easy to offload when you’re ready to sell.
If gold is out of your budget, consider silver. This metal is more affordable than gold and boasts many applications. Silver is used for automotive parts, electronics, solar panels, and soldering.
Consider platinum and palladium if you’re looking for something more unique. These metals are very scarce compared to gold and silver, which is why they are in such high demand. However, their performance tends to be more volatile than that of other precious metals. Because of this, platinum and palladium may be best for experienced investors and those who don’t mind taking on risk.
Methods To Incorporate Precious Metals Into Your Portfolio
If you’re sold on the benefits of precious metals in a diversified retirement portfolio, how should you incorporate them into yours? You have a few options, which we’ll go over next.
The first option is physical bullion held in storage facilities. Physical bullion is appealing because it allows you to own a tangible asset you can touch and see.
Keep in mind, however, that you’ll need to pay for storage and insurance, which can cost several hundred dollars per year. It’s also somewhat harder to sell physical bullion compared to other precious metals investments. You’ll have to find a buyer willing to offer you a fair price, which could be problematic if you need to offload your bullion quickly.
Precious metals IRAs are another option. A precious metals IRA allows for the tax-deferred growth of your investments, which means you won’t owe taxes until you sell. You may also be able to take advantage of certain tax deductions when you hold precious metals in a diversified retirement portfolio.
The main drawback is that you’ll have to comply with very specific IRS rules regarding precious metals IRAs. For example, the IRS doesn’t allow you to store IRA-eligible gold at home, and only certain types of precious metals qualify for IRAs.
Next up are exchange-traded funds (ETFs). An ETF allows you to invest in precious metals without having to buy and hold physical assets. Instead of owning physical bullion, you’ll own a share in a fund that holds precious metals. If you’re familiar with buying and selling stocks, you might like a precious metals ETF. You can buy and sell ETFs just as you would any other stock.
Lastly, you can invest in precious metals mining companies. With this investment, you’re essentially betting on how well a mining company might perform. For example, if the mining company discovers a large deposit of gold, your payoff could be huge. However, investing in mining companies does carry more risk than other types of precious metal investments. That’s because mining stocks are influenced by things like geopolitical events, leadership decisions, and the company’s performance.
Establishing a Precious Metals IRA for Diversification
A precious metals IRA is similar to any other type of IRA, except it holds metals like gold and silver instead of stocks and bonds. With an IRA, you don’t have to fret over the storage and upkeep of your precious metals.
To open a precious metals IRA, you’ll have to choose a precious metals IRA company and a self-directed IRA custodian. The custodian will handle the purchasing and storage of your precious metals on your behalf. You’ll need a custodian and a precious metals storage company because the IRS doesn’t allow you to keep IRA-eligible metals at home.
Once you’ve opened your account, you’ll need to fund it. A popular method is to rollover funds from your 401(k) or existing IRA. You can have your IRA manager perform the rollover for you or withdraw the funds and deposit them yourself. If you choose to do it yourself (this is called an indirect rollover), you must deposit the funds within 60 days of withdrawal. If you miss the deadline and are under age 59 ½, you’ll have to pay a 10% early withdrawal penalty fee.
Now, it’s time to buy your precious metals. Keep in mind that only certain types of metals are eligible for IRAs. Examples of eligible metals include American Eagle gold coins, Canadian Maple Leaf gold coins, and PAMP Suisse gold bars.
All bullion must meet specific purity requirements, as well. Gold must be 99.5% pure, silver 99.9% pure, and platinum and palladium 99.95% pure.
After selecting your precious metals, it’s time to decide where to store them. You must keep your metals in an IRS-approved depository. Your IRA account manager will likely recommend some depositories to choose from. Select a depository with strong security measures, such as 24-hour surveillance and restricted access to the facility.
Potential Risks and Considerations
Precious metals are great for portfolio balance but are not without risks. It’s important to know those risks before investing. They include:
- Market volatility: Although precious metals tend to remain stable in value, price fluctuations and Federal Reserve policy could impact your investment. No investment is completely risk-free, and that includes gold and silver.
- Liquidity concerns: If you purchase physical bullion, you might run into trouble when finding a buyer. Offloading physical bullion is more difficult than selling shares of a gold ETF.
- Storage and insurance costs: You’ll have to buy insurance and pay an annual fee to store your precious metals. These fees can cost hundreds per year.
- Regulatory and tax implications: If you’d like to set up a precious metals IRA, you must pay attention to IRS regulations to ensure you remain compliant. Not doing so could result in hefty penalties. You must also understand the tax implications of owning a precious metals IRA.
Learn More About the Benefits of Precious Metals in a Diversified Retirement Portfolio
Investing in precious metals is an excellent way to diversify your portfolio and a smart move if you’re seeking a possible hedge against inflation. If you’d like a historically stable investment to protect your retirement, precious metals could be the right pick for you.
Want to discover more about the perks of precious metals IRAs? Call Preserve Gold at (877) 444-0923 today.
