When panic and fear dominate financial markets, gold and silver will rapidly rise to the surface – will rise in price. This is a fact. We witnessed this same phenomena during the last financial crisis, and it is already starting to happen again. Many believe gold and silver will be the ‘last man standing’ investment when the next crisis hits, and the country begins to unravel.
More specifically, gold IRA’s are without a doubt, the best place to put your money. Why? Well, here is a ‘short’ list of why Gold IRA’s stellar characteristics. We will first list them and then delve into each one to help you make your decision:
- Growth Potential
- Hedge Against Inflation
- Hedge Against Deflation
- Hedge Against Risk
- Tax Benefits
- Total Transparency
- Geopolitical Uncertainty
- Tangible Asset
- Stellar Track Record
- Portfolio Diversification
- Increase Demand
- Supply Constraints
- and much, much more
A Gold IRA can reduce the volatility of your retirement portfolio. Historically, gold has moved counter to the direction of stocks, bonds and mutual funds.
Regardless of your traditional investment preferences, a tangible asset like gold can help make the profitability and safety of your retirement portfolio far more attainable.
Including gold in your investments could improve investment performance by either increasing returns without increasing risk, or by reducing risk without adversely affecting returns.
In the example above, if you had purchased $33,000 worth of gold in 1971, when Richard Nixon was the president, and held on to it during the last recent economic crisis you could sell that gold today for $1,155,000.00!
Gold’s growth potential is indisputable.
Hedge Against Inflation
Gold has been and remains a good hedge against inflation. Throughout history, from ancient Greek and Roman times to Europe in medieval times to Germany in the 1920s and many other countries in the 20th century, gold has protected people’s savings and wealth from the debasement of paper currencies and from the scourge of inflation.
As we showed you the value of gold if held since 1971 where stagflation was the rule of thumb, gold acted as a hedge against inflation.
Hedge Against Deflation
Gold in a deflationary era was never depicted more clearly than in the Great Depression of the 1930s. The dollar which was backed by gold (unlike today in our modern floating fiat currency monetary system) was sharply devalued and gold revalued overnight from $20.67/oz to $35/oz.
Hedge Against Risk
Gold cannot go bankrupt. While gold rises and falls in value like other currencies and assets, its scarcity and finite nature mean that it always retains some value.
Gold has a track record of holding its real value over the centuries. It has also been shown in numerous studies that gold is the only one of the seven asset classes with a negative average correlation to the other asset classes. Meaning that gold generally rises when the more popular asset classes (such as equities and property) fall and gold falls in value when other asset classes rise. This means that gold inherently, is a risk management factor.
There are three ways to invest in gold and the tax considerations for each.
1. Individual Retirement Account (IRA)
An IRA will allow you to purchase and hold gold. The tax rate for the account is like any other IRA. When investing in a gold IRA, there are usually fees for storage and administration to keep in mind.
2. Exchange-Traded Funds
Another option is to invest in gold without buying physical gold. This can be done through investment in gold exchange-traded funds (ETFs), gold mutual funds or gold mining stocks. They may yield lower pre-tax returns, but the after-tax rate may make them a good investment. When held for one year, they are taxed at the long-term capital gains rate.
3. Closed-End Fund
These funds often price gold stocks at a discount, according to Forbes. A closed-end fund is similar to mutual funds or ETFs that pool money from investors. The price of mutual funds and ETFs generally remain according to the net asset value of the fund commodity. Closed-end funds can fluctuate and be discounted or sold at a premium. The returns on the fund are taxed at long-term capital gains rates when held for at least one year.
The chart below is very illuminating and provides great insight how transparent gold as an investment vehicle, just how gold has fared over the last 10-12 years.
The chart shows a long term view of transparent gold holdings since 1970. As the gold bull market began in the late 1990’s, the amount of gold held in transparent holdings rose sharply and displays a very high correlation with the rising gold price.
In a recent report, David Mazza looked at gold’s performance during times of increased volatility, either the result of internal market forces like the dot.com bubble and geopolitical events like 9/11.
What was found is that gold tends to perform well in these scenarios because its supply and demand (explained later) characteristics are very diverse. Even if you don’t expect there to be a major market-moving event, with gold, you get the benefits of an uncorrelated asset.
The report also said that, as of December 12 gold represented about 1% of total global assets; Mazza added that with increased risk sentiment in the marketplace, they are expecting to see gold investments expand its role “as a strategic long-term asset.”
Gold can be a really nice ballast when balancing those different sides of the risk spectrum.
Because gold is one of the few assets you can actually touch and feel, it’s one of the best tangible assets and not ‘funny money,’ it’s also one of the best ways to counter your investment’s cycle.
These asset classes tend to have little positive correlation with the stock and bond markets. Some are even counter-cyclical; an investment in tangible assets could reduce your exposure to overall market risk in a way that most intangible assets cannot.
Gold Track Record
Gold has been outperforming almost, every other asset class in the past decade. Look at the chart below, which compares gold and S&P 500 since 1980.
As we can see since 1980, gold has first fallen from $300 to $255. It then rose from around $300 to currently $940 an ounce. That is a performance of 200% (see smaller chart)! The S&P 500 on the other hand is down from 1400 to 923, a minus of 35%.
With everything being equal, gold is hands-down the best play you can make in diversifying your portfolio.
“One of the most important attributes that gold has is that it helps investors manage risk more effectively,” says Juan Carlos Artigas, director for investment research at the World Gold Council.
Why? Gold helps manage risk and volatility of a portfolio. Its low correlation relative to key asset classes, can help protect portfolio losses in times of market stress, as it acts as a high-quality and tail risk hedge.
“When investors are looking to protect wealth, gold is one of the vehicles they use to achieve this. When it comes to managing risk, gold offers investors true diversification. Gold has a low correlation to stocks, and not only in periods of expansion, but even more so in periods of recession,” Artigas concludes.
It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices.
In previous years, increased wealth of emerging market economies boosted demand for gold. In many of these countries, gold is intertwined into the culture.
Additionally, demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, SPDR Gold Trust, became one of the largest ETFs in the U.S., as well as one of the world’s largest holders of gold bullion in 2008, only four years after its inception.
And Much, Much More…
We’ve only scratched the surface of why gold should be a part of every portfolio. One could consider gold a “thinking man’s” investment because of its strategic nature. Even though it can make you rich, gold’s main purpose is to provide a mainstay and ballast in a time of chaos and turmoil. And that chaos and turmoil is coming to a town near you… guaranteed.
So if you’ve read each benefit, you most likely are ready to begin the review of the best gold ira firms available today?
Choosing an investment vehicle of retirement funds is as important as saving for the retirement itself. Many people are now turning to gold IRA as a way to increase the value of their portfolio and reduce the volatility.
An IRA or an Individual Retirement Account is one that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status and other factors. ~ Investopedia
If you are new to investing or even new to having your own IRA you may feel at a loss with how to properly and most effectively manage it. If you are unsure about the future of the stock market, you can do what millions are doing every day. You can take deliberate and well-planned steps to safe-keep your investments by rolling over portions of your IRA to gold.
Including gold in an IRA diversifies people’s investment portfolio and offers much more stability against inflation and market volatility.
Using the self-directed option of your IRA to invest a portion of gold can help protect your investment and ensure that you will not be putting your future in the hands of a volatile stock market. You can also use gold as way to protect your retirement from inflation. However, for most people the concept of an IRA to gold rollover is a new concept and they have no idea where to go or what to do.
Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium.” ~ Murray N. Rothbard
For more than two thousand years gold’s natural qualities made it man’s universal medium of exchange. In contrast to political money, gold is honest money that survived the ages and will live on long after the political fiats of today have gone the way of all paper.” ~ Hans F. Sennholz
Market instabilities and sometimes inflating currencies threaten people’s retirement investments. Adding gold to your retirement will provide the necessary safety of volatility paper currency presents. How? Gold does not lose its purchasing power like dollars, stocks, and bonds. More importantly, gold does not depreciate as physical assets. Therefore, gold is the vehicle of choice for long-term prosperous investing.
Gold should be an integral part your diversified investment portfolio because of its price increases in response to events that happen around the world, and more importantly, when cases that cause value of paper investments, such as stocks and bonds, to decline.
The price of gold has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.
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