When it comes to planning for retirement, having a diverse portfolio is key to riding out economic ups and downs. One way to diversify beyond stocks and bonds would be to invest in gold.
Although there are no guarantees, the value of gold has appreciated in 15 of the past 20 years, on par with the S&P 500. Many years, when stocks have dipped, the price of gold has risen. For instance, when the S&P 500 dropped 38.5% in 2008, the value of gold rose 3.4% and then went up another 27.6% the following year.
The question for many becomes how do I retire with gold? Fortunately, it’s not as hard as it might seem. In this article, we’ll cover different ways you can invest in gold for retirement, as well as the benefits and drawbacks of each.
In this article:
- Option 1: Invest in gold through an IRA
- Option 2: Invest in physical gold
- Option 3: Invest in gold stocks
Option 1: Invest in gold through an IRA
If you have an IRA, you know they come with robust tax advantages. Contributions to a traditional IRA are tax-deductible, while Roth IRAs are funded with after-tax dollars but provide tax-free money in retirement.
IRA investments are typically stocks, bonds, and other securities such as ETFs. However, self-directed IRAs allow other types of investments, including gold. Gold must be 99.5% pure to be invested in an IRA, with some exceptions such as American Eagle coins. There are also exclusions for rare or collectible coins and some foreign currencies.
The IRS doesn’t allow people to store precious metals for an IRA in their homes, and gold must be held in an approved depository. However, when it is time to take distributions from your retirement account, you can choose to receive the physical gold as an in-kind distribution. The other option for distributions is liquidating the gold and receiving its cash value.
Several companies can help you get started opening a gold IRA. Here’s a closer look at two highly-rated companies:
|American Hartford Gold||Oxford Gold Group|
|Sample gold investment options||American Eagle coins, Canadian Buffalo coins, Sunshine Minting 1 oz bars, Valcambi Suisse CombiBars||American Eagle coins, Canadian Maple Leaf coins, Bottlenose Dolphin coins, 1 oz bars from various mints|
|Investment tracking||Regular statements||Online portal and quarterly statements|
|IRA custodian||Equity Trust||Equity Trust, STRATA Trust Company|
|Depository choices||Brinks, Delaware Depository, International Depository Services||Brinks, Delaware Depository|
|Minimum order size for IRA||None||$7,500|
|Fees||Based on account size and amount of holdings in depository||A flat annual fee of $195|
|Learn more||Visit its website||Visit its website|
When opening a gold IRA, keep an eye on fees, which may include costs for account maintenance and storage. Some companies may charge a shipping fee if you decide to receive physical gold when taking a distribution from the IRA.
Remember, the IRS has specific rules for IRAs. Annual contributions are limited to $6,000 in 2022 or $7,000 if you are 50 or older. Distributions taken before age 59½ are subject to a 10% tax penalty; you may also have to begin taking required minimum distributions (RMDs) at age 72.
Option 2: Invest in physical gold
If you want to avoid IRS restrictions—or prefer to keep gold in your possession—you could invest in gold outside of an IRA, which involves simply buying gold and holding it until you need to liquidate it for cash.
When you invest in gold this way, you’re not limited to a certain purity and can purchase rare and collectible gold coins or bars that may not qualify for an IRA.
To invest in physical gold, you must find a reputable gold dealer. Many of the same companies that assist with opening a gold IRA—such as Oxford Gold Group and American Hartford Gold—also allow customers to purchase gold directly.
Consider the following when selecting a dealer:
- Seller markups
- Shipping costs
- Buyback promises
- Authenticity guarantees
- Seller reputation
Once you decide where to buy your gold and make a purchase, you must determine how best to store it. If you plan to keep the gold in your home, talk to your insurer about whether extra coverage will be needed. Using off-premises storage, such as a bank safety deposit box, is another common option.
Option 3: Invest in gold stocks
Those who want the benefit of gold investments but don’t want to store physical gold should consider gold stocks.
Some gold stocks, such as Barrick Gold (GOLD), are shares in individual gold mining companies. Others, like Franco-Nevada (FNV), have revenue that comes from gold and other commodities.
The value of these stocks won’t exactly mirror the value of gold since they depend on other factors, such as how well a particular business is run. To minimize risk, you can purchase gold mutual funds and ETFs containing shares of multiple mining companies and gold-related firms. These include the First Eagle Gold Fund Class A (SGGDX) and the VanEck Vectors Gold Miners ETF (GDX).
Some funds invest in gold itself or are benchmarked to gold. In terms of returns, these funds should track closely with the price of gold. Examples include SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU).
When it comes to retiring with gold, investing in stocks can be the cheapest and easiest avenue. Accounts can be easily opened with online brokerage firms like Robinhood and SoFi, and many offer fee-free trading.
Before opening an account, consider the following:
- Account set-up, maintenance, and trading fees
- Funds available for purchase
- Minimum balance requirements
- Fund research tools
Many gold funds can also be purchased and held within traditional and Roth IRAs, providing tax advantages. Regardless of whether you buy stocks in a retirement account or an individual brokerage account, selling shares and cashing out for distributions should be a simple process.
How to know which option is right for you
Which option you choose to invest in gold for retirement depends on your preferences and financial goals. There is no single option that is best for everyone.
If you’re looking for tax advantages, a gold IRA or gold stocks purchased within a traditional or Roth IRA will be your best bet. If you are wary of financial institutions, you may find peace of mind by storing physical gold securely at your house.
Take a look at some pros and cons of each option:
Tax-advantaged retirement account
Ease of purchasing and storing gold
Opportunity to receive physical gold after the age of 59 1/2
Subject to IRS rules and regulations
10% tax penalty for distributions before age 59 1/2
More fees than the other options
Personal possession of physical gold
No limitations on the type or purity of gold purchased
Purchases are private and not subject to government or financial institution monitoring
No tax advantages
Liquidation requires finding a buyer
Easy and affordable through online brokerages
Some funds pay a dividend
Tax advantages if purchases within an IRA
Gains depend on how well funds or companies are managed
May not reflect the true value of gold
Frequently asked questions
Is gold a good investment for retirement?
Opinions are mixed. Some argue that gold is an excellent hedge against inflation while others worry about its volatility.
However, we know that:
- Gold has historically maintained its value
- Gold’s value tends to rise when the cost of living increases, providing inflation protection
- Interest in gold remains high—both as an investment and a commodity
Therefore, it makes sense to consider gold for your retirement planning if you’re looking to diversify your portfolio. Young adults may want to buy physical gold, while seniors worried about volatility may find that gold mutual funds reduce risk by spreading investments across numerous companies.
Of course, it’s always wise to consult with a financial professional. Gold investments can be part of your larger retirement planning strategy, and a finance expert can help ensure you are taking a diversified approach.
How much of my retirement funds should be invested in gold?
Financial advisors may suggest keeping anywhere from 5% to 15% of your portfolio in gold.
For instance, Mad Money host Jim Cramer once told CNBC that he considered 10% the upper limit for gold investments in a portfolio. Meanwhile, an analysis from CPM Group, a commodities research firm, found that a portfolio with 20% of gold assets provided the best risk-to-reward ratio for long-term investing.
While the percentages vary, everyone agrees that you should not be investing your entire retirement savings in gold—or any other investment for that matter.
Spreading your money across multiple investments is known as diversification, and it is a key component of successful retirement planning. That way, if a particular investment has a bad year, the value of your entire nest egg doesn’t drop along with it.
Are some gold coins or bars better than others?
If you are planning to buy physical gold, you’ll have to decide whether to purchase bars or coins.
Gold bars can be a convenient way to store a large amount of wealth. The following companies and mints are among those known for the quality of their gold bars:
- Credit Suisse
- Perth Mint
- Sunshine Minting
Coins are more variable in their size, gold content, and value. While a gold bar derives its value from the gold itself, a coin may have a collectible value beyond the gold it contains. The following are a few gold coins that are worth considering for investors:
- American Gold Buffalo
- American Gold Eagle
- Australian Gold Kangaroo
- Canadian Gold Maple Leaf
If you purchase bars or coins for a gold IRA, be sure they meet IRS standards. Except for American Eagle coins, gold must be 99.5% pure. What’s more, some rare, collectible coins, such as the British Sovereign, aren’t eligible for IRAs.
What causes the price of gold to fluctuate?
Like other investments, the value of gold can change over time. The following factors may all play a role in how much your gold is worth:
- Supply and demand
- Economic conditions
- Central bank purchases and sales
- Political changes
Just like other commodities, such as gas and oil, the price of gold can change on a daily—or even hourly—basis. Remember that if you are going to retire with gold, investing is for the long-term, so don’t panic by short-term fluctuations.