How Much Gold Should I Put In My Retirement Account?
While governments around the world have been doing their best to keep both people and the economy safe from COVID, fears surrounding inflation continue to rise. Between supply chain disturbances, injections of cash into the economy, and uncertainty about the future, more investors are adding alternative assets to their accounts. Gold’s historical store of value, relative safety, and physical rarity make it a great option for investors looking for a hedge against unexpected future events.
How Much Gold to Put into a Retirement Account?
Experts have varied opinions on the exact amount of gold you should put in your retirement account, but the general consensus seems to be in the 5 to 15% range. While gold is incredibly unlikely to drop all the way to zero, it’s subject to ups and downs just like any other investment. Buying at a high and being forced to sell at a low can very much happen, leaving you with no gains or even a net loss. Perhaps more importantly, while gold is a great safety measure against certain financial events, it doesn’t have the same potential for profit as more traditional investments or alternatives like cryptocurrency. This means that the more gold you put into your retirement account, the more you eat into your potential earnings, requiring your account to be larger in order to have enough yield for you to retire.
How Safe Is Gold?
Proponents of gold are keen to point out that it’s been a fairly safe store of value for thousands of years. They’re right — to a point. While gold’s physical scarcity and its cosmetic and engineering applications mean that it’s unlikely to plummet like a stock from a bankrupt company, it’s still subject to the whims of the market. Gold was $290 / oz towards the end of 1999, $1,420 / oz in 2010, $1,060 / oz in 2015, and $1,798 in 2020, with many fluctuations between. While someone investing in 1999 and selling in 2020 would have made a fantastic profit, someone investing in 2010 and being forced to sell in 2015 to meet yearly minimums would have lost a decent chunk of change. Keeping the amount of gold in your IRA relatively small can help you manage this facet, as you’ll be able to cash out other investments to meet your minimums when gold isn’t performing particularly well.
Profit and Inflation
Your retirement account’s goal is to give you a source of income that outpaces both inflation and your living expenses, ensuring you can have a live a comfortable, relaxed life. Investments in other financial vehicles tend to have both higher and more consistent returns. Gold can do well short-term, sometimes, but it’s more of a store of value than a way to earn interest on your money.
This isn’t to say that gold can’t shoot up in value. It can. Investments in stocks, mutual funds, and other securities can also shoot up in value, however, and these investments tend to have a much better performance rate during a typical year. In general, the more gold you have in your investment accounts, the less of a profit you earn, especially while the economy is doing okay.
Managing Risk
This means that at the end of the day, putting gold in your retirement account isn’t about making a profit. It’s about hedging your bets. If there’s a year that’s absolutely terrible for the stock market, having a bit of gold in your retirement account can help you minimize your losses and give you more control over your other investments. With minimum yearly withdrawals for many retirement accounts, having diversified assets lets you choose what you withdraw when, letting you keep money in stocks you believe in during tough times. Gold also can’t be printed, split, or otherwise diluted. If you own physical gold, there’s nothing that anybody anywhere can do to make you have any less. If you’re worried about inflation, purchasing a bit of gold is a great way to help lower the effect of future inflation on your portfolio.
Tips For Investing In Gold
There’s a special type of IRA specifically for things like gold called a precious metal IRA. These gold IRA investment accounts have a number of bureaucratic hoops that you have to jump through. You’ll have to hire a custodian to hold your gold, purchase the gold from a dealer, and then have it held in an approved depository. Once it’s there, the process of withdrawing it can be complex due to the way physical metal interacts with your required minimum distribution. The extra hoops make a precious metal IRA a massive hassle for smaller investment amounts.
For more flexible investing, consider exchange-traded funds or mutual funds that track the price of gold. These investments can give your portfolio the level of exposure to gold that you desire without adding all of the fees and headaches of managing a precious metal IRA. Your goal here is to add a bit of safety, not to keep your whole account in bullion, and these options tend to mesh better with most retirement accounts. If you’ve got a larger account, however, and you’d like the extra safety of holding physical metal yourself, a precious metal IRA will give you a bit more safety and control in exchange for some administrative fees and the hassle of buying, selling, and storing actual gold.
