It is hard to keep up with the latest in fashion and technology, but that does not keep most of us from trying. Styles in clothing seem to change so quickly that you feel fortunate if you can wear an item for two years without feeling archaic. And smartphones have evolved into gigantic all-around tools that no longer fits into your pocket discretely. Investing your Self-Directed IRA into cryptocurrency or gold could be a great way to diversify your retirement account.
We can chase the latest and greatest in shirts, skirts, and computers if we choose, without doing much damage, except perhaps to our budgets. But a word of caution is in order when it comes to choosing your investments for your Self-Directed IRA. There is a lot more at stake here than just a minor fashion faux pas.
Right now, investing in cryptocurrency with your Self-Directed IRA is the rage. It is the hot topic of blogs, forums, and podcasts. So far, it is mysterious, tantalizing, and unregulated—the exciting new kid on the block that was just created back in 2009.
By contrast, gold (and other precious metals) have been around practically forever. It needs no explanation because you can see it and wear it as jewelry or invest in it through mutual funds or as a physical asset. It is traded on several international exchanges and comes with regulations and safeguards.
What is cryptocurrency?
According to Webopedia.com, cryptocurrency refers to “digital money that can be purchased, transferred, and/or sold securely using cryptography, which encrypts and protects the data used to help identify and track cryptocurrency transactions.” It is digital money and exists only on the internet. Unlike gold, it is not backed by anything tangible nor is it managed by an authorized third party such as a government or bank.
Although it is not the only cryptocurrency, Bitcoin is the largest and most popular digital payment currency that uses cryptocurrency to create and manage monetary transactions instead of a central authority. This decentralized form of currency features transactions that are changed and verified by a network of computers, none of which is associated with any one single entity.
A less confusing choice
Standing in contrast to cryptocurrency, gold is one of the most established and comprehensible investment assets around. It has a fairly stable price point that is set by established exchanges, and it also has fundamental value and a reputation that was established many centuries ago. As for price, gold tends to trend up or down with moderation, while the value of cryptocurrencies can fluctuate crazily, giving conservative investors more than a few sleepless nights. These are great things to invest in with your Self-Directed IRA.
Another advantage of gold is its tangible nature. Investors can see and touch it in forms such as ingots, jewelry, and coins. Cryptocurrency does not exist in any physical form but is made up of the algorithms that mine them and the blockchains that track them.
In a nutshell, gold and other precious metals are some of the least complicated assets to hold in your portfolio. Conversely, cryptocurrency is complex—and can be risky!
A $460 million disaster
It was the world’s largest bitcoin exchange. Mt. Gox was thought to be impenetrable until a 2011 hack took the site offline for several days. Then, a few years later, it was discovered and revealed that hackers had been skimming money from the exchange for years. The company eventually admitted that 850,000 bitcoins had been stolen for a loss of about 460 million dollars.
It seems that Mt. Gox was undone by poor management, neglect, and inexperience. A lack of third-party oversight did not help matters.
There is a valuable lesson to be learned from the implosion of Mt. Gox, especially for those investing for their retirement. Confine your portfolio to things you can understand. In the gold vs. cryptocurrency contest, gold is the hands-down victor.
Turn to the professionals for help
At American IRA, we believe that Self-Directed IRAs for Precious Metals are an excellent vehicle for growing your retirement account. And we have the experience to handle your transactions, no matter which direction you choose to go with it—Gold, Silver, Platinum, or Palladium.