Nothing lasts forever. Economies, empires, stock markets and currencies rise and fall. Governments issue and revoke currencies, and they devalue them when they get into trouble.
Currency devaluation doesn’t have to be an Argentinian-style, overt slashing: When a government pursues expansionary monetary policy at the expense of investors, and runs up tons of debt in relation to its production capacity, they can devalue the currency over time through the pernicious effects of inflation, which eats away at the purchasing power of a retirement portfolio like cancer eats through bone.
Yes, you can own gold, as well as other precious metals, within your retirement accounts, including IRAs and solo 401(k)s, subject to certain restrictions. An upcoming article will get into the precise types of gold you can own. Here are the reasons why the vast majority of investors with substantial assets to protect should consider investing a portion of their portfolio in gold.
Hedge against uncertainty. Geopolitical uncertainty is ever present, and can happen anywhere. In the vast majority of cases, an approaching crisis is foreseeable only with hindsight. If it were easy to steer economies away from icebergs, everybody would do it. The fact is that avoiding severe economic dislocations is, in practice, very difficult for politicians and policy makers to do.
When the world is in crisis, gold tends to surge. This means that when some of your international investments are in trouble, demand for gold as other investors flock to safety normally push prices up. You have the option of standing pat, or selling gold to those trying to escape struggling currencies at a good price, and buying some distressed assets yourself. The choice is yours.
Diversification. This tendency of gold to zoom when some other asset classes are crashing – not necessarily American stocks – are key to its power. Because gold can act as a counterweight to volatile assets such as international stocks and bonds and foreign currency-denominated investments means that the addition of a modest amount of gold may actually reduce your portfolio’s volatility as a whole.
Scarcity. The price of oil has plummeted lately, thanks to a cutback in demand, the discovery of vast new oil reserves, and the increased efficiency of fracking. No such comparable process is happening for gold. While gold mines are still hard at work trying to find more gold, the fact remains that gold is still a tremendously hard-to-find, scarce resource and it’s a very difficult, resource-intensive process to find it.
Gold’s value has always resided in its beauty, durability and its scarcity. Neither is likely to change any time soon.
Tangibility. One of the reasons gold has been such an anchor in rough economic waters for thousands of years is that it’s tangible. Your fellow investors have faith in it because they can touch it. Where public confidence in paper assets can collapse with alarming suddenness, this tends to enhance the demand for gold. Where any paper security can theoretically drop to zero, an interest in gold is always going to retain at least some value.
Inflation. Gold is also a historically effective bulwark not just against catastrophic economic events abroad, but also against the slow and steady erosion of inflation. The weaker the dollar gets, the more dollars an ounce of gold will generally command.
There are no guarantees. Like any other commodity, gold prices rise and fall with market forces. Where people are confident, gold prices tend to be restrained. They tend to rise when people somewhere are fearful, generating demand for the security and stability of gold – the traditional rock where everything else is in a state of collapse.
American IRA, LLC and founder Jim Hitt have long-established expertise with administering Gold IRAs and precious metal IRAs. For more information, visit us at www.americanira.com, where you can download our exclusive guide to the gold IRA. Or call us today at 866-7500-IRA(472).
We look forward to serving you.
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