Why Invest in a Gold IRA

The average American’s IRA includes stocks, bonds, and mutual funds and is administered by large financial institutions. These traditional vehicles for wealth protection in an IRA do not provide any assurance. Case and point–the importance of diversifying in entirely different asset classes was amplified in both the 2000 and 2008 financial crises. In 2008, the stock market dropped nearly 40%, real estate values plummeted, unemployment surpassed 10%, and the dollar weakened. It was evident, that although stocks, bonds, and real estate are different asset classes, during a crisis, all three, were highly correlated. This perfect storm evaporated retirement savings and nearly wiped out the safety net of many hard-working Americans.

Mainstream media, government tax breaks, employers and large financial services companies have often, and continue, promoting investment in the stock market and real estate as a means of accumulating wealth. However, these institutions neglect to emphasize wealth preservation by investing in precious metals. Since 2000, investing in Gold IRAs has a strong record and grown popularity due to its stability against volatile market conditions.

Everyone has some insurance to protect what matters the most. Similar to home, auto, and life insurance, a Gold IRA is your retirement savings insurance. True portfolio diversification includes precious metals to immune your savings from steep stock market crashes, currency devaluation, inflation, and deflation. That is why an IRA holding precious physical metals is an important option to ensure full diversification.

Benefits of Gold

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Also, the risk of a policy error by the world’s central banks means that investors should be considering exposure to safe-haven assets such as gold, according to investment analysts. Throughout the centuries, people have continued to hold gold for various reasons. Below are six reasons to own gold in an IRA today.

1. A Store of Wealth:

Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.

2. Balance of Risk and Return:

Not all assets are intended to make you money some are there to protect and provide security/insurance. Gold is one of them. Investing in Gold doesn’t keep you up at night. It has a very minimal risk and works as insurance on any other investments made that are considered risky. Therefore, properly diversified investors combine gold with stocks and additional investment in a portfolio to reduce the overall volatility and risk while providing them with the insurance-like protection of their hard earned money and assets.

3. The Weakness of the U.S. Dollar:

Although the U.S. dollar is one of the world’s most important reserve currencies, the decline in the U.S. dollar occurred for many reasons, including the country’s massive national debt, budget and trade deficits and a significant increase in the money supply due to Federal Reserve’s monetary policies.

4. Inflation:

Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost of living increases. Over the past 50 years, investors have seen gold prices soar and the stock market plunge during high-inflation years.

5. Geopolitical Uncertainty:

Gold retains its value not only in times of financial uncertainty but in times of geopolitical uncertainty. It is often called the “crisis commodity,” because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.

6. Gold is a Private Form of Wealth:

In an increasingly digitalized world where data breaches and cyber attacks have been constant, privacy remains paramount. As a private form of wealth, that is both tangible and portable; physical gold can be privately accumulated, easily liquidated and traded worldwide.

ETF vs. Physical Gold

Precious metals could be acquired physically and via paper assets. However, there is no substitute of physical ownership of precious metals.

An Exchange Traded Fund (ETF) is a paper asset backed by the underlying asset. The most-traded gold ETF is the ticker symbol “GLD.” This gold ETF is backed by gold, but it’s not the same thing as owning physical gold. ETFs are like buying stock in gold. The value of the ETF goes up and down with the value of gold, but you can never exchange the ETF for actual gold (or any other precious metal).

ETFs are best used by heavy frequency traders and provide the convenience of investing in different assets without taking ownership of the underlying asset as such ETFs do not require storage costs.  ETF have associated recurring fees where a percentage of the investment’s value is lost each year due to a recurring annual fee required for management and administrative expenses. SPDR Gold Shares ETF (GLD), the leading ETF, charges an annual fee of 0.40%. In addition, there is a transaction fee anytime an investor trades his or hers ETF shares.

The major limitations of Gold ETF is that you as an investor will not have the physical ownership of the underlying physical asset and is not suited for long-term investors due to heavy intraday trading.

Investors who understand common law property rights and want to have a better control, the decision to have physical metal owned under your name at a vault or secured depository rather than a complex web of securities with limited redemption rights should be obvious. That’s ultimately the difference between owning precious metals vs. ETFs.  

Also, worthy to note that there have been many recent examples of ETFs abruptly suspending redemptions or restricting shareholders from accessing or buying more of the underlying security. A recent example is iShares Gold Trust (IAU) on March 2016.

The following Chart highlights the difference between physical and ETF gold.

 

  Gold ETFs Physical Gold
Type of Asset Paper asset with the underlying investment in metals. Physical, the actual metal
Physical Possession No for average investor. If major holder above $10 million, redemption could be paid out in gold or cash. Yes
Portable No Yes
Risk associated with stock market Exposed to financial systems and do not provide physical security Considered a safe haven asset, especially during market crashes
Liquidity Very liquid in normal market conditions; illiquid in market crash Very liquid in both normal and abnormal market conditions
Fees A) Commission at every buy and sell trade.

B) Annual Fee .40% for on-going management

 One-time dealer premium at purchase.

No Annual Fee.
Privacy & Reporting Requirements Must report.

Regulated by the SEC and FINRA.

Personal information required at account opening.

 Potentially no reporting requirements when purchased.
Limited or no reporting requirements when sold.
Very Private and unobtrusive.

 

How To Best Acquire Gold And Silver

Acquiring the physical gold for the long run is the superior option over ETF. Physical precious metals cannot be printed by central banks like paper assets and are key to truly diversifying and protecting retirement savings from financial systems.

Beginner gold and silver investors are encouraged to start with a combination of bars, bullion and investment grade coins minted by a recognized national mint. Allegiance Gold works directly with the most notable mints such as the U.S. Mint and the Royal Canadian Mint.

Wealth Preservation Through Diversification

When it comes to investing, savvy money managers advise that you spread your money around, that is, “diversify” your investments. Diversification protects you from losing all your assets in a market swoon. The four main asset types are Stocks, bonds, cash and precious metals. The whole theory of asset allocation is based on diversifying your portfolio by asset class. Therefore, a portfolio that contains only one or two asset classes is not diversified and may not be prepared to take advantage of all the swings the market can throw at you.

Why Invest in a Gold IRA

The average American’s IRA includes stocks, bonds, and mutual funds and is administered by large financial institutions. These traditional vehicles for wealth protection in an IRA do not provide any assurance. Case and point–the importance of diversifying in entirely different asset classes was amplified in both the 2000 and 2008 financial crises. In 2008, the stock market dropped nearly 40%, real estate values plummeted, unemployment surpassed 10%, and the dollar weakened. It was evident, that although stocks, bonds, and real estate are different asset classes, during a crisis, all three, were highly correlated. This perfect storm evaporated retirement savings and nearly wiped out the safety net of many hard-working Americans.

Mainstream media, government tax breaks, employers and large financial services companies have often, and continue, promoting investment in the stock market and real estate as a means of accumulating wealth. However, these institutions neglect to emphasize wealth preservation by investing in precious metals. Since 2000, investing in Gold IRAs has a strong record and grown popularity due to its stability against volatile market conditions.

Everyone has some insurance to protect what matters the most. Similar to home, auto, and life insurance, a Gold IRA is your retirement savings insurance. True portfolio diversification includes precious metals to immune your savings from steep stock market crashes, currency devaluation, inflation, and deflation. That is why an IRA holding precious physical metals is an important option to ensure full diversification.

Benefits of Gold

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Also, the risk of a policy error by the world’s central banks means that investors should be considering exposure to safe-haven assets such as gold, according to investment analysts. Throughout the centuries, people have continued to hold gold for various reasons. Below are six reasons to own gold in an IRA today.

A Store of Wealth:

Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.

Balance of Risk and Return:

Not all assets are intended to make you money some are there to protect and provide security/insurance. Gold is one of them. Investing in Gold doesn’t keep you up at night. It has a very minimal risk and works as insurance on any other investments made that are considered risky. Therefore, properly diversified investors combine gold with stocks and additional investment in a portfolio to reduce the overall volatility and risk while providing them with the insurance-like protection of their hard earned money and assets.

The Weakness of the U.S. Dollar:

Although the U.S. dollar is one of the world’s most important reserve currencies, the decline in the U.S. dollar occurred for many reasons, including the country’s massive national debt, budget and trade deficits and a significant increase in the money supply due to Federal Reserve’s monetary policies.

Inflation:

Gold has historically been an excellent hedge against inflation because its price tends to rise when the cost of living increases. Over the past 50 years, investors have seen gold prices soar and the stock market plunge during high-inflation years.

Geopolitical Uncertainty:

Gold retains its value not only in times of financial uncertainty but in times of geopolitical uncertainty. It is often called the “crisis commodity,” because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.

Gold is a Private Form of Wealth:

In an increasingly digitalized world where data breaches and cyber attacks have been constant, privacy remains paramount. As a private form of wealth, that is both tangible and portable; physical gold can be privately accumulated, easily liquidated and traded worldwide.

ETF vs. Physical Gold

Precious metals could be acquired physically and via paper assets. However, there is no substitute of physical ownership of precious metals.

An Exchange Traded Fund (ETF) is a paper asset backed by the underlying asset. The most-traded gold ETF is the ticker symbol “GLD.” This gold ETF is backed by gold, but it’s not the same thing as owning physical gold. ETFs are like buying stock in gold. The value of the ETF goes up and down with the value of gold, but you can never exchange the ETF for actual gold (or any other precious metal).

ETFs are best used by heavy frequency traders and provide the convenience of investing in different assets without taking ownership of the underlying asset as such ETFs do not require storage costs.  ETF have associated recurring fees where a percentage of the investment’s value is lost each year due to a recurring annual fee required for management and administrative expenses. SPDR Gold Shares ETF (GLD), the leading ETF, charges an annual fee of 0.40%. In addition, there is a transaction fee anytime an investor trades his or hers ETF shares.

The major limitations of Gold ETF is that you as an investor will not have the physical ownership of the underlying physical asset and is not suited for long-term investors due to heavy intraday trading.

Investors who understand common law property rights and want to have a better control, the decision to have physical metal owned under your name at a vault or secured depository rather than a complex web of securities with limited redemption rights should be obvious. That’s ultimately the difference between owning precious metals vs. ETFs.  

 

Also, worthy to note that there have been many recent examples of ETFs abruptly suspending redemptions or restricting shareholders from accessing or buying more of the underlying security. A recent example is iShares Gold Trust (IAU) on March 2016.

 

The following Chart highlights the difference between physical and ETF gold.

 

  Physical Gold Gold ETFs
Type of Asset Physical, the actual metal Paper asset with the underlying investment in metals.
Physical Possession Yes No for average investor. If major holder above $10 million, redemption could be paid out in gold or cash.
Portable Yes No
Risk associated with stock market Considered a safe haven asset, especially during market crashes Exposed to financial systems and do not provide physical security
Liquidity Very liquid in both normal and abnormal market conditions Very liquid in normal market conditions; illiquid in market crash
Fees One-time dealer premium at purchase.
No annual fee		 A) Commission at every buy and sell trade.
B) Annual Fee .40% for on-going management
Privacy & Reporting Requirements Must report.
Regulated by the SEC and FINRA.
Personal information required at account opening.		 Potentially no reporting requirements when purchased.
Limited or no reporting requirements when sold.
Very Private and unobtrusive.

 

How To Best Acquire Gold And Silver

Acquiring the physical gold for the long run is the superior option over ETF. Physical precious metals cannot be printed by central banks like paper assets and are key to truly diversifying and protecting retirement savings from financial systems.

Beginner gold and silver investors are encouraged to start with a combination of bars, bullion and investment grade coins minted by a recognized national mint. Allegiance Gold works directly with the most notable mints such as the U.S. Mint and the Royal Canadian Mint.

Wealth Preservation Through Diversification

When it comes to investing, savvy money managers advise that you spread your money around, that is, “diversify” your investments. Diversification protects you from losing all your assets in a market swoon. The four main asset types are Stocks, bonds, cash and precious metals. The whole theory of asset allocation is based on diversifying your portfolio by asset class. Therefore, a portfolio that contains only one or two asset classes is not diversified and may not be prepared to take advantage of all the swings the market can throw at you.

What Percentage of My Portfolio Should I Allocate to Precious Metals?

There is no specific allocation percentage to precious metals as it differs from an individual to next based on the overall financial profile; however, Allegiance Gold recommends at least 10% to 20% of your liquid assets, including retirement accounts. Investors choose the allocation of assets based on their risk tolerance and preference. The following three precious metals allocations will provide you more of insight on how investors think and position their portfolios.

  • Strategy #1: Light Allocation in Precious Metals

You can start by lightly allocating 5% to 15% of your portfolio in physical precious metals. By having a light allocation into precious metals, you are taking a strong confidence position in the economy and stock market as a whole but you are taking at least a small measure to diversify and ensure your portfolio.

  • Strategy #2: Moderate Allocation in Precious Metals

Considering today’s economic and political uncertainty, and the late growth expansionary cycle of the stock market, it is recommended to have a moderate allocation to precious metals between the ranges of 15% to 25%. By taking a moderate allocation in metals, based on historical market corrections, you will minimize your exposure and losses in the market and better position to increase your future gains with higher portfolio balance.

  • Strategy #3: Heavy Allocation in Precious Metals.

Investing more than 25% of your retirement accounts in precious metals is deemed a heavy allocation. Allegiance Gold does NOT recommend this strategy for beginner investors.  Some experienced precious metals investors have been able to navigate and whether prior economic environments by holding heavy allocations in metals. These investors typically have a bleak outlook in the stock and bonds market and are extremely concerned about inflation, deflation, federal government’s national debt level and Federal Reserve’s monetary policies.  

Worthy to note that having a heavy allocation in precious metals defeats the notion of diversifying since a higher percentage of gold in a portfolio could have volatility similar to other types of assets such as stocks and bonds.

You Allegiance Gold Senior Portfolio Manager will help you choose the adequate allocation based on your needs.