Gold and Other Precious Metals Make Excellent IRA Options
You may have heard a lot about investing in gold and other precious metals. Naysayers and true believers alike are pretty loud about why it’s a terrible idea or the second coming of whatever deity they prefer. It can be hard to make heads or tails of the metals market, and even harder to determine exactly what you should believe. While doing your own research is always the best option to figure out where you stand (especially when it comes to making a financial commitment), it can be tough to determine the difference between hyperbole and reality, especially when all people involved seem to be inordinately passionate about their position.
You’re in luck, though. We’re here to help make sense of it all. It’s an investment like any other, complete with risks and rewards and unique considerations.
They’re a Useful Market Commodity
It can be easy to think of investments in purely abstract terms, especially if you never actually see the products directly. You can invest in water and look at your numbers all day long, but are you actually ever going to physically see those gallons with your own two eyes? As far as you’re concerned, there’s little difference between hundreds of dollars in water and hundreds of dollars in novelty bobble head dolls of old 80’s cartoon characters. It’s all just numbers on a page for the average investor, and the things that are actually being invested in may as well exist as ideas in the ether, right? I know I’ve made that mistake in how I’ve thought about my own portfolio.
Smart investors realize that their holdings are physical goods, and precious metals are a hot commodity in a lot of markets. While precious metals are valuable in and of themselves due to their utilization in currency – indeed, many options out there are actual coins and bullions that can be used as legal tender if you really felt like it – the real value comes from the good they can do beyond their role as money. Gold, silver, palladium and platinum are the four kings of the market due to their use in electronics. Everything from transistors to wires utilize metal in some way. Gold and silver are particularly valuable due to their use in microcircuits and other electronics that rely on miniscule parts. This is due to their unique conductive power and resistance to tarnish and wear in technological components, as discussed.
This value isn’t confined to existing markets, powerful though those markets may be. Demand is skyrocketing in developing nations that are interested in modernizing and integrating new and existing technologies into their economy. Business is growing in those nations, and that requires a standard of technology that runs on precious metal components. Emerging market sectors make them a worthwhile investment. The rarity of precious metals makes them a little more expensive than your average commodity – the supply is lower, thus demand is higher – but expanding technology in developing nation makes the upfront cost worth it in our opinion.
They Offer Diversity to Your Portfolio
A diverse portfolio is a happy portfolio. Gold and other metals are naturally diverse, which is a fairly complex concept that requires a tiny bit of explanation. To understand diversity, consider any given business. Let’s imagine a shop that sells shoes, and they want to maximize their customer base. They sell both snow boots and flip flops! If it snows, their customers will be able to buy the boots, and if it’s sunny and hot out they’ll be able to pick up some flip flops. No matter what mutually exclusive weather conditions are out there, the shop will be covered because they offer a variety of choices for every occasion.
Your portfolio should work the same way. If one market dips, your overall holdings will still be fine because your other holdings might still be stable. It’s unlikely that every market will dip at the same time, especially if you have a lot of different unrelated markets covered. Precious metals, but gold especially, have the property of being naturally diverse due to moving inversely to the dollar. If the value of the dollar decreases, gold values tend to increase. Given that the modern dollar loses value frequently, that makes gold fairly stable.
There are a few ways to actually invest in precious metals as well. As mentioned previously, you can invest in precious metals as a commodity market, but you can also buy raw metals directly through a reputable dealer. These metals can take the form of coinage or bullions, and each option has its own pros and cons. Coins are valuable collectables as well as investments, and have a face value that lets you use them as legal tender. However, that face value is almost always significantly less valuable than the metal used to make them, so ultimately that feature is a novelty at best. Bullions are generally bars or other shaped metal, and are the more expensive but the more valuable of the two options. There are a few extra costs to investing this way, but overall gold IRA fees are lower than they have been in over a decade.
Overall, precious metals make for a generally safe and stable investment, but not without special considerations. For one, you should only allow it to take up a maximum of 10% of your portfolio. Any more than that starts to see diminishing returns on value versus risk.