Should I invest in a gold IRA is the question that still many ordinary folks ask themselves. In this post, I will outline the reasons for ordinary folk to invest in a gold IRA account.
Any investment asset has certain risks, some higher and some lower. The idea when investing is to know exactly what the risks of a particular asset are, in order to make the right decision, the decision that suits your needs best and at the same time minimizes your risk. Over the years, we’ve seen many investors lose their fortunes because they just got too greedy.
The same applies to your IRA investment. An IRA invested solely in mainstream assets will put your savings at risk in case of a market crisis.
For example, last year (2020) between February and March the stock market lost 10.000 points. As a result, trillions of dollars invested in stocks bonds, and other mainstream investment products were lost. Many IRA investors had to postpone their actual retirement time, due to low funds in their retirement accounts.
Gold IRA Definition
A gold IRA investment is an individual retirement account, an account that functions the same way as a regular IRA account however, instead of holding paper assets, it holds physical bullion coins or bars.
Gold IRA vs Traditional IRA
A gold IRA is treated by the IRS as any other IRA. The difference between the two is that a mainstream IRA is invested in mainstream assets such as the stock market, government bonds, options, and so on whereas in a gold IRA the money is invested in gold. The IRS has also allowed IRAs to be invested in other precious metals such as silver, platinum, and palladium. Moreover, Cryptocurrency IRAs are also allowed.
A gold IRA is an asset that holds its value, especially during bad economic times. A gold IRA will secure your savings and offer financial stability to your investment.
A traditional IRA investment (401k, SEP, Thrift, Roth, and so on included) invest in traditional assets, such as the stock market. Although these types of investments can offer great returns, they are subject to large fluctuations during difficult times. That means you could see your money disappearing in a very short time.
Reasons to Invest in a Gold IRA
- Diversification. In an investment portfolio putting all eggs into one basket is a big mistake. A prudent investor should include different types of investments just in case things go wrong. Gold is the asset that will diversify your investment portfolio.
- Protects your investment from inflation. Inflation rates will rise to high levels thanks to endless money printing by the Fed. High inflation rates are bad news for your dollar. In a high inflation environment, your purchasing power will drop substantially.
- Gold is a tangible asset.
- Gold is not a chain in someone else’s liability. eg. Having your money invested in a company’s shares and the company goes bust due to illegal activities or because it took the wrong business decisions.
- A gold investment protects your savings from geopolitical uncertainty. If a war breaks in the Middle East, for example, the traditional investment assets will take a downturn (stock market) but not gold and other precious metals.
- Increasing demand for gold and silver industrial use. eg gold is used in computers mobile phones and so on.
- Low or negative interest rates. That means your dollar loses value every single day if it is stored at the bank.
- The weak dollar is more bad news for your life savings
- The stock market bubble. We are witnessing an unprecedented bubble in most assets. The stock market bubble though is the one that once it bursts it will actually cause the biggest problems in the economy because this particular bubble is a huge one.
Rotten Political and Financial System
The newly elected Biden administration is faced with an almost impossible task. First, the social and political divisions of this great country should be addressed. Then something must be done to deal with the covid19 virus and then something should be done to change the monetary system.
Most finance experts and market analysts agree that today’s fiat currency monetary system does not work. Since its introduction back in 1971 it has only created disorder and turbulence in the economies and the markets.
Unfortunately, we are faced with irresponsible individuals who do not have the political will and guts to make the right decisions for themselves and for the country. In addition, central bankers are also responsible for this, because they have seen their profits skyrocket, at the expense of you and me, and they do not want that to change.
The Abandoned Gold Standard
In 1971 President Nixon abandoned the gold standard policy. It was a move that surprised the western world. The US kept cheating the rest of the world by printing cash in order to finance the Vietnam war. There was only one way for the US to get out of this and that was to abandon the gold standard policy.
What President Nixon started in 1971 is now leading to an uncontrollable money printing bonanza. Nevertheless, money printing has been carried out in the past in most western economies. Nowadays though the money printing programs that take place right now are enormous. President Trump and the Fed carried out a gigantic 2,5 trillion money printing program. The new Biden administration is willing to add another three billion fake money to the economy.
The Europeans too agree to raise a 2,1 trillion dollars stimulus package. Their funds will be raised by selling bonds collectively. In addition, similar money printing and bond selling programs have-are been carried out by most western countries.
Financial Crisis is on the Way
All these money printing and bond selling programs mean more debt for the bond sellers and worthless money flooding for those who chose to print cash. The results from these are likely to be.
- Further weakening of national currencies including the American dollar
- High inflation levels
- A large drop in our purchasing power
- Mainstream assets (stock market, etc.) to take a large fall
- Gold and other precious metals will see their value increased substantially
- Mainstream IRA programs will suffer big losses
Gold IRA Benefits
You may regret if you choose a conventional IRA or 401(k) investment with a bank or brokerage firm. The stock market bubble is expected to decimate traditional investment assets. Stocks, bonds, and so on will see their prices drop substantially. That means your, life savings could perish overnight and in the end, there won’t be enough savings for you to retire.
Since most IRA accounts are invested in traditional assets, and since all these assets move downwards or upwards together, (correlated assets) there must be another asset that does the opposite.
On the other side gold is a non-correlated asset. (an asset whose value isn’t tied to larger fluctuations in the traditional market) In fact, gold always does well in times of crisis. Call it a financial crisis, recession, geopolitical tensions, war, covid-19, trade war, whatever the case is, gold not only maintains its value but also sees significant gains.
Black Monday1987Iraq-Kuwait War1990Dot Com Crash2001Financial Crisis2008Stock Market Decline-38.9-22.5-27%-34%Gold Price Results+5%+7.5%+1%+5%Gold Outperformed Stocks By Ratio45:131:129:140:1
We have seen the risks involved with a mainstream investment portfolio. Prudent investors do not put all eggs in one basket. This is applicable right now that we are facing an overvalued stock market and the effects of the uncontrollable money printing policy.
An IRA investment should be low-risk or risk-free. That’s because it is made of money that is not in abundance but your own hard-earned-savings. In addition, if that money gets lost, then you will have nowhere else to turn to.
Since the IRA’s are made of hard-earned money then, extra care should be taken to make sure the investment is well protected. Considering gold is the safe-haven asset during bad times, then a gold IRA will ensure that your life savings will not perish overnight in case of a financial crisis.