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While many people open a retirement account through an IRA, fewer are aware of the benefits of a gold IRA. A gold IRA is similar to a traditional IRA, except you can fund your IRA with gold instead of stocks, bonds, or mutual funds. But how do you evaluate the performance of your gold IRA, and is a precious metal IRA right for you?
First, what is a gold IRA? A gold IRA is a self-directed IRA (individual retirement account) that allows a person to save for retirement by investing in gold and other precious metals. In a precious metal IRA, gold, silver, and other precious metals must be kept in an IRS-approved depository. If you want to hedge your retirement against inflation, investing in a gold IRA could be your best option.
Set Clear Investment Goals
If you want to expand your retirement investment portfolio, investing in gold, silver, platinum, or palladium with a precious metal IRA could be the best option. Historical investment performance should be your primary consideration when considering what type of IRA to choose between a traditional, Roth, or precious metal IRA.
Compare the pros and cons of each type of investment account. What is your personal risk tolerance for your investments, and how will you manage your asset allocation if you open an IRA?
If your employer offers a 401(k) or other retirement planning account, you can open an IRA to manage additional savings for your retirement. Some employers even offer IRA investment options so you can deposit funds from each paycheck directly toward retirement. However, your employer likely does not offer a gold IRA option.
Instead, you can open a self-directed gold IRA and fund it with physical gold or other gold assets, including gold exchange-traded funds (ETFs), precious metals mutual funds, gold or silver mining company stocks, and precious metals commodity futures.
Monitor Market Trends and Gold Prices
The gold price fluctuates daily, with most investors looking at the daily “spot gold price” to track performance trends over time. Many investors and economists look at the price of gold compared to the price of silver and the U.S. dollar to determine which precious metal is a better option for investing now and predict which investment will have better value in the future.
Gold typically fluctuates more than silver but tends to have a higher price. Investing in gold over silver means you could see a greater percentage of return on your investment or face a higher risk of depreciation. Other precious metals like platinum and palladium also fluctuate more and have very high prices compared to gold or silver.
While silver trends steady in value with fewer price swings, gold offers a better investment opportunity when prices do rise. Monitoring the market can help you buy at an opportune time to earn a generous return in the future.
Review Portfolio Allocation
When you’ve established and funded an investment account, you need to evaluate the performance of your gold IRA from time to time. You will need to monitor what assets you have in your gold IRA and calculate your account’s value based on your holdings.
You can also request an investment evaluation by a professional account manager through your custodian or check your account balance through your custodian’s app. You should still perform your own calculations occasionally to ensure your account value is correct in the app and to look for discrepancies.
Assess Historical Performance
Historically, gold has retained its value even during economic downturns, traditionally increasing at times when paper assets lose value and vice versa. Having a diversified portfolio that includes gold investments can help you hedge against inflation when the U.S. dollar isn’t worth as much.
Because IRAs are retirement accounts, investing in a gold IRA while you’re still working and having a separate 401(k) or other investment account for paper assets can help you prepare for any economic situation later in life, after you retire. Even the best economists can’t forecast decades into the future, so diversifying your portfolio while you’re young is essential.
Older Americans can also take advantage of the value of gold investing. If you want to invest in gold at a later age, you can roll over an existing IRA or 401(k) into a gold IRA and convert your asset allocation to gold. Understanding the historical performance of gold and your personal risk tolerance is important before deciding to open a gold IRA.
Consider Diversification Strategies
Having a diverse investment portfolio is essential for your investment performance over time. While mutual funds, stocks, bonds, and paper currency offer diversification, they can prove risky during times of economic downturn. Having an investment portfolio backed by gold, silver, or other precious metals can help you resist investing losses due to a lack of diversity in your portfolio.
Hedging your investments with precious metals allows you to resist losses due to inflation. While paper money easily loses value during high inflationary periods, gold and other precious metals can balance your losses if you diversify your investments. Analyzing potential risks and rewards through diversification can help you determine the best investment options for your retirement investment strategy.
Consult With a Financial Advisor
No one knows what the future holds. Planning for retirement can be a challenge, even for seasoned investors. A licensed financial advisor can help you compare risks and trends and ensure you know what you need to open and fund a gold IRA. Most gold IRA companies will allow you to purchase gold, silver, palladium, or platinum to fund your precious metal IRA directly.
Gold IRAs are still new and not a common IRA strategy for most people. Choosing a financial advisor with experience creating and managing precious metal IRAs is essential if you want to ensure you meet all IRS qualifications for managing your investments. For example, the precious metals in a gold IRA must be held in an IRS-approved depository.
An experienced financial advisor can recommend investment strategies you should consider, including diversifying your portfolio between paper investments and precious metals as a safeguard against future economic downturns. They should also know current exchange rates and fees to open or manage investments, so you can invest more in holdings and less in fees.
Regularly Track and Analyze Returns
To calculate your account’s return on investment (ROI), you need to know the initial value of your investments. This includes the amount you spent to fund your account, plus any additional deposits to increase your account value. You then need to calculate the current value of your account. The difference between the current value and your initial investment is your ROI.
Calculating this number regularly can help you determine whether you need to alter your strategy between different investment avenues or stay the course.
Oxford Gold Group: Invest With Confidence in a Gold IRA
Now that you know how to evaluate the performance of your gold IRA, learn more about your investment options with Oxford Gold Group. We offer precious metal IRAs, gold and silver coins, bullion and bars, and several informational resources for precious metal investing. Contact us today to learn more about investing in gold.