Portfolio diversification is one of the most crucial elements to help your retirement investments withstand cyclical economic downturns and bearish stock market conditions. Investing in precious metals such as gold, silver, and similar global commodities provides an important hedge against market volatility and rising inflation.
3 Steps to Investing in Precious Metals
Precious metals provide protection against volatility because they retain their intrinsic value. Since these commodities hold their value regardless of market conditions, they are relatively uncorrelated to more common asset classes such as stocks, bonds, and mutual funds. Retirement investors can sleep soundly knowing the value of their investments in precious metals won’t plummet by half overnight.
Commodities such as gold, silver, and copper historically have been used as forms of currency. These metals and many others also play key roles in a wide range of industrial applications, such as electronic circuitry, electronic and medical devices, construction, wiring, and computer parts.
The Internal Revenue Service allows many different precious metals for SDIRA investments. These include gold, silver, palladium, platinum, and copper, as well as bars produced by approved refineries. Prior to making investments in precious metals, though, retirement investors must complete these three steps:
- Select an SDIRA custodian. Rocket Dollar can help retirement investors set up a Self-Directed Individual Retirement Account and also ensure all precious metals investments adhere to federal regulations and tax rules.
- Fund the Precious Metals SDIRA. Investments in precious metals can only be made with funds in your SDIRA. Investors can fund their SDIRA with pre-tax dollars or roll over existing employee-sponsored 401(k)s.
- Make purchases. Once you’ve decided on purchasing certain precious metals, Rocket Dollar will arrange for payments through your SDIRA, as well as facilitate the transfer of purchased metals to eligible repositories.
5 Reasons Why Savvy Investors Choose Precious Metals
Before adding precious metals to their portfolios, retirement investors should take into account these five considerations:
- Storage. You can’t accumulate a stack of shiny gold bars in your home safe using funds in your precious metals SDIRA. According to IRS regulations regarding the purchase of precious metals through an SDRIA, all metals must be stored in an IRS-approved repository.
- Fees and ongoing costs. Unlike some investment classes, there can be many additional fees or ongoing costs associated with the purchase of precious metals, including transaction, wire, transportation, and storage fees.
- Valuations. Historically, rarity has largely determined the price of gold and silver. Today, values are determined by supply and demand, as well as global macroeconomic trends and fluctuations in the value of the U.S. dollar.
- Liquidity. Investments in precious metals typically are a long-term play, which could impact investor liquidity for additional financial endeavors. However, gold is considered an extremely liquid asset due to its high volume of trading in physical and futures markets.
- Quantity. If the value of gold rockets past $1,400 or $1,500 an ounce, investors may be tempted to pile in. However, investors are seeking diversification through these types of investments. Investors new to the precious metals space should consider making smaller investments in precious metals and see how their investments fare before funding larger purchases.
Precious metals can be a lucrative investment option that provides increased diversification to your retirement portfolio. They offer stability, intrinsic monetary durability, protection from market fluctuations, and independence from inflation. Like any alternative investment, precious metals aren’t without certain risks. Rocket Dollar can help you set up a precious metals SDIRA as well as provide assurance that your investment choices adhere to IRS regulations.
Thomas Young: March 09 2023
