A very basic introduction to investing in precious metals in particular gold
Investing in gold benefits
Physical gold is one of the best forms of long-term wealth protection. It is ideal for your heirs since it will outlast any currency or cryptocurrency that they may use in the future.
In a world of elevated risks on multiple fronts, gold offers lower risk, greater safety, and bigger upside than any other investment.
If you want a private or confidential form of wealth, gold is one of the few assets that can offer anonymity.
Gold storage is low maintenance, low-cost, and requires little space. No special skills or expertise is needed to buy physical gold. In fact many companies offer a safe storage facility for a small fee if you want to avoid doing this yourself.
International gold storage is simple to implement and can provide both financial flexibility and investment options outside your home country. Many countries invest in gold such as Switzerland, Germany and China to name three.
Gold can be easily converted to cash, and can go with you anywhere.
Physical gold is not subject to the risks that come with paper assets. It can’t be hacked or erased by someone online.
Physical gold cannot go bankrupt or broke. Gold bullion will never default on promises or obligations.
If you want an asset that will rise when most other assets fall, gold is likely to do that more often than not. The more common stocks you own, the more gold you need as the stock market can easily crash and you can lose a huge percentage of your assets. In fact depending on who you listen to this is overdue.
Gold in the time of a stock market crisis
This is a key measure, look at some of these numbers with regards the stock market and gold prices in the time of a crisis. Gold has the ability to ride the storm whereas if you invest solely in the stock market your investments can take an absolute battering
| BLACK MONDAY 1987 | GULF WAR 1990 | DOT COM CRASH 2001 | FINANCIAL CRISIS 2008 | |
| Stock market drop | -38.9% | -22.5% | -27% | -34% |
| Gold price | +5% | +7.5% | +1% | +5% |
Sources: World Gold Council and DJIA Industrial Average on Google Finance
Gold gotchas
You need to invest in physical gold, there are several other ‘products’ such as gold stocks and bonds, gold ETFs and gold futures. Some of these can be created at will, are at the mercy of the financial system and any volatility. These are called paper gold – don’t waste your time with this investment.
Gold and your retirement
This is a long term plan, planning for your retirement. This may sound strange but you should really think about your retirement when you start working and I also believe you should look at your legacy for your children.
Make your life comfortable and help them as well. Lets look at a precious metals IRA which deals with Gold but also can include Silver, Palladium and Platinum.
A precious metals IRA, also known as a Metals IRA, is essentially a self-directed IRA holding physical coins and bars. A Metals IRA can be opened with an accredited custodian that allows physical gold bullion investments. When opening a precious metals IRA, once can either fund it by rolling over a previous retirement account (e.g. a SEP, 401k, 403b or others) or transferring funds from another retirement vehicle. One can also write a check or transfer money from a bank account to fund their Metals IRA.
Converting part of your retirement savings to gold (and other precious metals) can reduce the volatility of your overall retirement portfolio. Historically, gold has moved opposite to the direction of stocks, bonds, real estate and mutual funds. Regardless of your traditional investment preferences, tangible assets like gold and silver can help make the profitability and safety of your retirement portfolio far more attainable while mitigating risks from uncertain geopolitical landscapes.
Including gold within an existing portfolio could improve investment performance by either increasing returns without increasing risk, or by reducing risk without adversely affecting returns.
#1. DIVERSIFICATION
Diversification is rule number one when it comes to protecting and growing your wealth, and it’s the most compelling reason to include precious metals as part of your retirement strategy. Physical gold and silver can offer protection against market fluctuations and stock market shocks by helping you create a strategically balanced portfolio.
#2. INSURANCE
For many investors, holding a portion of their savings in physical gold and silver is like taking out an insurance policy on their retirement. Since gold and silver were first discovered tens of thousands of years ago, they’ve held a strong purchasing power and value.
The same cannot be said for paper assets. Consider this scenario: if a company goes out of business, its stock could potentially be worth zero and if you held a large portion of this stock, you could be left with nothing. Physical gold and silver, on the other hand, have never been valued at “zero” and can never “go out of business.”
#3. CONTROL
Self-Directed Precious Metals IRAs are self-directed, which means you, the investor, are in control of the asset allocation. You’re not restricted to only holding traditional assets such as publicly traded stocks and bonds, mutual funds, or treasury notes.
You can hold all types of assets in your Precious Metals IRA, such as cryptocurrencies like Bitcoin or Ethereum, oil & gas, commercial real estate and other alternative assets that are not allowed in traditional 401ks and IRAs.
#4. GROWTH POTENTIAL
Conventional IRA vehicles are largely dependent upon the performance of a select group of stocks, bonds, and mutual funds, which are inextricably tied to the state of the economy. When the economy suffers, so can many IRA accounts.
The economic factors that weaken stocks, bonds, and cash may increase the profit potential of precious metals, as safe haven demand for gold and silver has proven to increase during turbulent economic times.
#5. TAX ADVANTAGES
Self-Directed Precious Metals IRAs generally receive the same great tax benefits as conventional IRAs. Depending on your tax bracket, contributions to your Self-Directed Precious Metals IRA may be claimed as tax-deductible.
Like all IRA holdings, writes the Journal of Accountancy, gains from gold sold within an IRA are not taxed until cash is distributed to the taxpayer, with distributions being taxed at the taxpayer’s marginal tax rate.
While highlighting the opportunities for gold owners to increase their after-tax returns via an IRA, the Journal also compared two hypothetical taxpayers, finding a “significantly higher after-tax rate of return for any form of gold” held in an IRA, rather than in a brokerage account.