By Tyler Gallagher, CEO and founder of Regal Assets, an international alternative assets firm with offices in Beverly Hills, Toronto, London and Dubai.
Traditional individual retirement accounts (IRAs) typically don’t let investors choose the asset classes or specific companies in which they want to invest. Fortunately, self-directed IRAs empower investors by giving them exactly that choice. And, for entrepreneurs, nothing sounds sweeter than being given the freedom to choose our own financial future.
Self-directed IRAs are an underrated tool for entrepreneurs because they allow you to invest in your own company by putting your business’s stock into a tax-advantaged retirement plan. This way, you can safeguard your equity from capital gains until retirement. This strategy, however, is just one way that entrepreneurs can take advantage of a self-directed IRA.
Another strategy is to invest in alternative assets, such as precious metals. A self-directed gold IRA can be an excellent choice for entrepreneurs who want to diversify their portfolio and shield their wealth if business declines or the economy takes a turn for the worse. In this article, I’ll explain why I think the time is right for entrepreneurs to gain exposure to gold through an IRA.
What Is A Gold IRA?
A gold IRA is a self-directed investment account that includes, but is not limited to, gold bullion or paper-backed gold, such as gold stocks or exchange traded funds (ETFs). Gold IRAs are tax-deferred accounts, meaning you don’t have to pay taxes on your returns until you withdraw from the account.
Not all gold bullion is eligible for inclusion in an IRA. Precious metals bullion must meet fineness standards set by the IRS and must be kept in the custody of an IRS-approved trustee or custodian and stored in a licensed depository. Precious metals held by the IRA owner are ineligible for inclusion in an IRA.
Gold IRAs can include stocks and fixed-income assets, such as bonds. What makes them a “gold IRA” is simply the fact that they also contain gold bullion.
Why Invest In A Gold IRA?
Gold is one of the most powerful diversifiers one can add to their portfolio. As a “safe haven” asset, gold has historically performed well during times of economic turmoil or uncertainty — qualities that make it an attractive asset amid our unprecedented market environment.
The price of gold has risen considerably since the start of the novel coronavirus pandemic earlier this year. When the S&P 500 tanked, gold fared significantly better. During the bear market that lasted from October 10, 2007 until March 6, 2009, the S&P plummeted 54%. In comparison, gold rose 27.4% in the same time. These extraordinary gains attest to gold’s potential value as a hedge against stock market decline.
Today, the U.S. equities market is especially precarious. Although broad market indexes have recently rebounded to all-time highs, economics forecasts look less-than-optimistic in the short-run. A Deloitte Insights analysis forecasts gross domestic product (GDP) contraction into 2021, driven by a sharp decline in consumer spending through to the end of the year. The authors also note that the unpredictability of the coronavirus and the uncertainty regarding future lockdown measures are strong destabilizing forces that may hold back consumer confidence for the foreseeable future.
All this to say that now seems to be a good time for gold. Since the arrival of Covid-19, the price of gold has rallied consistently. In August, the yellow metal eclipsed the $2,000-per-ounce mark for the first time in history, and billionaire investors like Warren Buffett and Ray Dalio increased their long positions on gold. As I see it, all signs currently point to a gold IRA being a safe bet for entrepreneurs who want to shield their wealth from losses in the event of another market crash.
Gold IRAs: The Downside
Like any investment vehicle, gold IRAs have their share of negative trade-offs. Below, I’ve listed some of the main costs and risks associated with gold IRA investing:
• Higher-than-average fees compared to standard Roth IRAs.
• Does not pay interest, dividends or yields.
• Cannot physically possess gold bullion per IRS restrictions.
Likewise, there is also the risk of fraud or having your gold bullion stolen. However, trusted third-party depositories have insurance on their assets, so much of the risk associated with theft can be mitigated by choosing a reputable vendor and custodian with secured vaults.
Gold IRAs: The Right Call For Entrepreneurs?
Gold IRAs can be valuable tools for hedging against systemic risk, inflation and stock market downturn. With so many uncertainties in the market, entrepreneurs should mitigate risk by diversifying their investment portfolio across a variety of noncorrelated assets, including, I believe, precious metals.
When the stock market declines, the price of gold usually moves in the opposite direction. To prepare yourself for the next economic downturn, a gold IRA may be just what you need. Unsure whether a gold IRA is for you? Don’t worry; you have up until tax day to contribute to your tax-advantaged IRA, no matter the asset type.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.