I don’t want to give you the impression that investing in gold is the holy grail of financial improvement or even retirement planning. Just like stocks and shares, the price of gold goes down as well as up, you can see that for yourself on the chart to above. But what I do want to do is give you the facts as I have found them, with links to the information, so you can make up your own mind as to whether investing in gold, especially within a gold IRA, is a worthwhile investment or not.
It is well documented for the fact that it is true, that over the lifetime of the stock market, all the precious metals, including gold, have been outperformed by stocks. Having said that, this did change recently in a dramatic way. Precious metals have outperformed the Dow Jones on a rather impressive scale, since the start of the new millennium in 2000.
You will see in the chart above taken from Yahoo Money that shows there was a 63.16% change from the start of 2000 to the end of 2014. Or to put it another way, when the market opened on 1st January 2000 it opened at 11,700 and when it opened again on the 1st January 2015 it opened at 17851.04. What this means is if you had invested in the stock market at the start of 2000, by the 1st of January 2015 you would have received a return on your investment of 52.6%. I think you would agree that considering the low return we currently get from the banks, a return of 52% is very favorable.
However if you had been investing in gold, how did that perform over the same time period?
The chart to the side here, courtesy of Goldbroker.com, shows that gold was at the price of $283 an ounce at the start of the millennium and it opened at the start of 2015 at the price of $1206 an ounce. That is a return of 326% – a big difference from the 52% gained from the stock market over the same period.
So yes, historically stocks have outperformed gold, but as the evidence shows, this has changed and the fact that it has happened over a 15 year period, and doesn’t look like changing, then investing in gold may be worth looking at, if you haven’t already.
So Why Invest in Gold?
From thousands of years ago, this metal has always been a big deal. I say it’s a big deal not only due to its worth but also because investing in gold has somehow always proved to be the best way to avoid inflation. Individual retirement accounts have been brought down by inflation especially for investors whose main focus was traditionally on the stock market, real estate and private equity. But buying a precious metal for the diversification of your portfolio, to increase your financial status and wealth, or to improve your IRA account, will always prove to be worthwhile. Here’s why.
WHAT YOU NEED TO KNOW IF CONSIDERING INVESTING IN GOLD.
In 1997, Congress passed the Taxpayer Relief Act which allowed investors to put away gold and other metals into a self-directed IRA. They were responding to investors who wanted to diversify their retirement portfolio from paper assets like cash, stocks, and bonds to add some tangible assets.
Edmund Moy, who is the leading Strategist for The Fortress Gold Group and was also the Director of the US Mint between 2006-2011, stated the following an article he wrote in September 2014: (click here for original source)
“By 2013, the total amount of assets held in all the Individual Retirement Account’s set up in the USA totaled 6.5 trillion dollars, and out of that amount 2.5 – 4 percent were now in non-traditional forms, such as gold.“
He went on to state:
“And looking long-term, there are several risks that favor the continued growth in gold IRAs, such as the fragile global economic recovery, potential of aggressive inflation in the United States, growing concern of a major stock market correction and increased geopolitical risks.”
When it comes to building a diversified investment portfolio, investing in alternatives from the normal investments, needs to be considered. The main reason being that diversification helps balance out the variances in values of other types of investment commodities. Sometimes an investor may be heavily invested in a particular type of investment such as stocks or ETF’s, but with a diversified portfolio, they may well have stocks from various sectors from the retail sector to the tech sector and so on.
LISTEN TO BILLIONAIRE INVESTOR KEVIN O’LEARY EXPLAIN WHY HE DIVERSIFY’S HIS PORTFOLIO WITH GOLD INVESTMENT
INVESTORS WANT MORE DIVERSIFICATION
True effective diversification is not just diversifying stocks and ETF’s, it is much more than that. More and more investors are looking to broaden their horizons by investing in things like REIT’s, corporate bonds, gold, and silver, as well as stocks and ETF’s.
BullionVault, who are a leading peer-to-peer gold-and-silver-bullion exchange, based in London, recently produced their annual report and analysis on how varying assets have performed over the last 40 years (1976-2015) in both the UK and the USA. (see report here)
As you can see from the facts below, although not the number one performing asset, gold has beaten other key assets in its returns over the past 40 years and has this century outperformed corporate bonds by a considerable margin.
ASSET PERFORMANCE LAST 40 YEARS
Gold’s 40-year change (+669% gross of costs) has beaten inflation (328%), housing (598%, excluding costs + yield) and cash (cumulative 535%).
Commodities have dropped below end-1975 levels (-3.05%);
REITs are the best-performing asset both since 1976 (9,177% cumulative on reported performance before costs) and also so far in the 21st century (up 484% since 1999);
Gold is the next best performer since 1999 (+340%) and then corporate bonds (160%);
Since 1976 gold rose in all 3 years when US stocks lost 10% or more, averaging 9.6% gains. It averaged 11.3% when REITs fell the same, rising on 3 of 5 occasions;
Cash interest rates have lagged inflation 16 times since 1975. Gold rose in all but 4 of those years, three of them 2013-2015;
WHAT ARE THE PROS & CONS OF GOLD INVESTMENT?
WHAT ARE THE PROS TO INVESTING IN GOLD?
A Shelter Against Volatility
The answer to why an investor should purchase this kind of investment is multifaceted. The first reason to invest is because it can be used as a hedge of protection against market volatility and inflation. Market volatility can affect the value of gold, but it typically affects it much less than other types of investments. One of the reasons for this is that the value of stocks, bonds and ETF’s are based on paper money and not in gold.
Protection from Inflation-Deflation
Inflation has always been a concern because inflation weakens the value of paper money. However, gold does not labor under the same constraints as paper money. It has a value that is established mainly through demand. Paper money can be weakened when there are shifts in power from one country to the next, or when there is some sort of political upheaval. In some cases, paper money can be rendered completely worthless, should the affairs of a particular country get bad enough. It is in these situations, gold benefits the investor.
Gold has had a remarkable performance during times of inflation and also deflation. Inflation is basically a period when the economy of a nation is struggling and the cost of living is high. During these times, gold prices tend to increase and that’s why it is often regarded as a ‘hedge against inflation’. Deflation, on the other hand, is when the economy is also struggling and business activity is quite slow. During deflation, it has been seen to perform well too.
Another thing to consider is its value. As you can see from the price chart below, the value of gold did skyrocket some years back, at one point reaching almost $2000 per ounce. Since then it has slipped to around $1200 per ounce (Current gold price can be found in the sidebar to the right). There is some discussion as to its value throughout the rest of 2017. Some experts are expecting gold to experience an explosion in value sending it closer to $2000 per ounce again. Other investors feel that while gold may not rise to this level, its values will steadily increase throughout 2017. Regardless, gold is at a good value and purchasing gold at current prices may be a wise investment as it is poised to increase in value, both in the short-term and the long-term.
WHAT ARE THE CONS TO INVESTING IN GOLD?
While we do think that gold is a good investment, there are downsides to investing in it, just like there are downsides to investing in anything. Therefore you really must consider your reasons as to why you want to invest in it or any other of the precious metals, before you start out.
It doesn’t produce cash.
What we mean by that is, if you are looking to invest for the sole purpose of generating cash on a regular or short-term basis, gold is not the investment type you want. Precious metals don’t pay out a dividend, therefore if that is what you need to consider stocks.
Don’t think of it as a short-term investment
OK, we all know that you make your money when what you have invested in increases in value. While Gold has increased considerably in value over the past 20 years, over a limited time frame we see the value of gold bounce in both directions. We are not saying you can’t make money short term, if that is what you want to do, you are going to have to be checking its price almost like a Hawk on a day to day basis. But if you take the view that investing in it is for the long-term and it is for diversification, then you can buy it and leave it alone without stressing as to whether it’s going to make you any money tomorrow.
WHAT ARE THE OPTIONS FOR INVESTING IN GOLD?
There are various ways in which you can invest in gold. You can do so through ETF’s, closed-end funds, and only stocks such as mining companies. But we want to talk about two particular options for your consideration: Buying physical gold outright and holding it in a vault/depository outside the banking system and secondly investing it into a gold IRA rollover.
The beauty of a gold ira rollover is that you don’t need to take out another IRA, you can choose to rollover some or all of your current IRA into a gold IRA. Also, it doesn’t matter if your IRA is traditional or Roth or if you have a 401(k), the ability to roll part or all of it is available to you. Whichever rollover specialist you talk to, they can advise you accordingly in relation to the best way to roll your existing plan into a gold funded plan.
It depends on what your reason is for investing. If you are looking to simply buy bullion and not invest in a Rollover then I recommend two of the world’s leading providers of gold BullionVault and GoldBroker, check out their respect reviews here: BullionVault review & GoldBroker review.
Please note that the content on this website does not constitute financial advice and should not be taken as such. The owner of this site may be paid to recommend Regal Assets or other companies. The content on this website, including any positive reviews of Regal Assets and any other reviews, may not be neutral or independent. It is advisable to always speak to a certified financial advisor before making any investment decision.