Individual retirement accounts allow people to save up money for their retirement since most people do not have the technical knowledge required to make sound investment decisions, they let their fund managers make their gold investment decisions on their behalf. This is true for 401(K) accounts where the fund managers make the investment decisions by investing the savings into less risky mutual funds.
This works well for the majority of the people as this requires the least amount of due diligence possible, however, some people may not want to leave the decision to invest their own savings at the discretion of their fund managers.
If you are looking to take control of your IRA then you may want to use a self-directed individual retirement account or a Gold IRA. Doing so will allow you to have control over your investment decisions, you can choose how, when and where you want to invest your savings.
Traditional IRAs or 401(K) accounts limit the investment options only to very low-risk investment options to prevent the loss of savings however self-directed IRAs do not have any such restriction and as such the savings in these accounts can be invested into a wide spectrum of options, precious metals in particular.
401(K) accounts do not allow investment into precious metals mainly because precious metals do not carry any return. Shares, for example, carry annual or periodic dividends, bonds carry annual interest but investing in precious metals does not create any regular return in the form of dividend or interest.
The only way to earn money on precious metals is to benefit from capital gain through capital appreciation and this can take some time because the price of precious metals is not very volatile. Precious metals require a holding period of many years to create a sizeable capital appreciation.
So then if precious metals do not carry regular dividends or interest payments then why do people still invest in precious metals? Well, it is clear that precious metals must have some other form of benefit.
It is true, precious metals provide stability when other assets fail. It has been observed over the years that precious metals, by virtue of their intrinsic value are able to hold their value in turbulent economic times and thus naturally if you have invested in precious metals.
Gold for example then your investment is likely to be protected from the volatility other financial assets go through and in case of an economic crash like that of 2008, precious metal goes up instead of going down because gold has an inverse relationship with the dollar. When the dollar goes down, gold goes up. Ever since 2000, the dollar has steadily weakened and during the same period the per ounce price of gold has gone up from $300 to over $1500
The stability that comes with precious metals is one major reason why people choose to hold their savings in a self-directed IRA. There are however other reasons too, that makes gold rollover a desirable option for many investors.
Before you proceed further, bear in mind that the needs of every investor are different. Some investors look for quick and high returns whereas some look for stability. Whenever you are about to make an investment decisions, take care to carry out proper due diligence first and weigh in all the available options, look at the pros and cons and then proceed with the option that suits you the most.
Having said that, let us now look at some of the benefits of Gold IRA rollover
Benefits Of A Gold IRA Rollover
Free funds transfer
When you roll over or transfer your funds from your traditional 401(K) to your self directed IRA, the transfer (if allowed by your employer) will happen without any transaction fee or charges. This, therefore, is a simple and trouble-free way to transfer your savings from one account to another.
If you go for a transfer then your money will simply be transferred through the banking channels and if you go for a rollover then you will have to withdraw your savings from your traditional IRA and then deposit them into the Gold IRA within 60 days to avoid any penalty or charges.
Inflate your savings
We have mentioned above that gold or precious metals do not carry any periodic rate of return and the only return you can get from precious metals is in the form of the capital gain when you sell them. This is one of the reasons why many people invest their retirement savings into gold, they play long.
The value of gold increased by almost 400% in two decades. Now imagine if someone invested their savings into gold when it was at $300per troy ounce and retired today when the price of gold is well over $1550 per troy ounce.
Their savings would have increased by over 400% during this time. If we look at the capital appreciation of gold, it has outperformed every stock. Thus by setting up a gold IRA, investors can invest their savings and see then inflate in value over time.
Hedge your savings
We have discussed this above, gold and precious metals act as hedging options too. Gold has got intrinsic value which means that the value of gold can never be zero, its value comes from its demand and rarity. Gold is highly valuable because firstly it is rare.
It is rare because it is not a naturally occurring element on earth, gold came on earth either during the formation of earth or later through meteors and asteroids. It is valuable because it is highly demanded in jewellery, electrical appliances, chipsets and in the industry in general. These two factors, rarity and value make gold hold its value even when the financial system collapses.
The last few years have seen major economies in the world filling up their reserves with gold. Russia and China have been rapidly building up their reserves in anticipation of a financial meltdown. You don`t need any more proof about the hedging capability of gold when you see entire economies using it as a hedging option.
Due to these reasons, many investors chose to rollover their retirement savings into Gold IRAs because it offers a better prospect of protecting the saving and growing at simultaneously without incurring much risk.