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How to invest in a Gold IRA
Given the steady rise of the price of gold and the resurgence of interest in this precious metal as an investment safe heaven, it is getting increasingly common to hear the following question: “How can I invest in a gold IRA?” This is the billion dollar question for the rising number of new investors trying to start gold IRAs from scratch and for long time investors who want to diversify their portfolios with partial or full rollovers. In either case, one is probably looking for a hedge against inflation and a safe investment for retirement. Fortunately, the answer to this question is simple and straightforward.
Overview of Gold IRA Investment Methods
There are, currently, three legally accepted methods through which an individual retirement account owner can invest in gold. In the following overviews of each method, prospective investors will find what they need to know in order to make an informed decision:
Directly – Direct purchase of gold in physical form (bars or coins).
Indirectly – Investment in stock market shares of precious metals ETFs (exchange-traded funds).
Indirectly – Investment in stock market shares of gold mining companies.
There are a few more investment vehicles that investors can use to gain an interest in gold, but in an IRA these three are the only way to go.
Purchase of Physical Gold
Buying gold bullion (bars) and coins is the only way to make a direct investment in gold because there is no intermediary between the investor and the asset. This is the method of choice for those seeking direct exposure to gold. The investment is automatically shielded against any speculative factor that is external to the gold itself. And given that demand (gold’s price greatest destabilizer) is on the rise, this is arguably the most tempting option for those seeking the safest and least volatile investment with high return available at the moment. After introducing gold coins or bars into the IRA portfolio, the investor can have the assets shipped directly to him/her or they can be stored and protected in an IRS-approved depository. Here lies the major issue with this investment method – cost. This is the most expensive way to invest in gold because of the extra fees charged for the logistic and bureaucratic requirements of transporting and storing a physical item. This is especially relevant in high net worth transactions because costs can add up considerably. To partially overcome this inconvenience it is recommended to buy coins instead of bars. Coins are much easier to move around, cheaper to buy and have higher liquidity than bars.
Precious Metal ETFs (Exchange-Traded Funds)
Physical possession of gold is not for everyone. Those looking for a cheaper and more convenient alternative have a viable option in ETFs that track the price of gold. Buying shares of precious metal ETFs in the stock market is still a much safer investment than buying other stocks because these diversified securities only track commodities which, by their own nature, are less volatile than company shares. The GLD (SPDR Gold Trust) and IAU (iShares Gold Trust) are two popular IRS-approved gold ETFs, for example. This is the recommended gold IRA investment vehicle for newcomers given it’s the simplest way to invest in gold and still offers a good level of exposure to the metal. In fact, this has become the favorite method to invest in gold for high-frequency traders. ETFs are very versatile and hassle-free investment options whose popularity has skyrocketed since the turn of the century.
Shares of Gold Mining Companies
Another option is to simply by stock of a mining company. Here, the investor is exposed to many factors external to the gold itself and the company’s shares may not actually track the price of the mined metal. The best approach to this method is to deal with it as a normal stock market investment. This implies careful analysis of the company’s financial history, balance sheet, future prospects of profit and so on. Research that is generally unrelated to the actual price of gold. This is the more speculative strategy, however, many gold mining stocks are currently on all times lows and this is usually the best time to make a move. Keeping an eye for signs of recovery may open the door to spectacular gains.
1. There are a few more investment vehicles that investors can use to gain an interest in gold, but in an IRA these three are the only way to go for the moment.
2. In many situations, prospective investors may only chose one of the investment vehicles presented above. It is, therefore, important to be fully aware of the legal and logistic requirements of each method as well as the costs incurred. All these aspects vary significantly and should be taken into account during the decision process. Since this choice is, usually, the sole responsibility of the investor, preponderating wisely is essential to ensure that the chosen investment vehicle is the best fit for the strategic management and long-term goal devised for the individual retirement account. Notwithstanding the inherent volatility of an asset that is, despite everything, still subject to speculation, this is the first step to create a successful gold IRA investment.