Should you have precious metals in your IRA?
You may have seen those commercials (like this one) advocating the use of a gold IRA or precious metals IRA. So...is it a good idea? Should you put your money in one?
The short answer? No. At least not more than a small portion of your money.
But why not?
Ah, now that is an interesting question!
1) Fees.
An important part of the Froogal Stoodent-approved investing method is to use low-fee options.
Storing your gold, silver, and platinum in an IRA is not a low-fee option. Some are better than others, but in every case, the company administering your IRA has to make money. That's not easy to do when they have to buy precious metals, pay for storage lockers and security, plus rent on the building, plus keep records of who owns what, and file reports with the government.
2) Performance.
Precious metals have a dismal performance record, even next to Treasury bonds. Stocks and REITs absolutely blow gold out of the water, in terms of performance over the past (pick a term - 20 years, 50 years, 100 years, or more).
3) Shenanigans.
You'll have to do some digging to make sure your claims are actually backed by physical gold. Otherwise, you're left holding worthless paper claims to a precious metal that doesn't actually exist.
At the risk of sounding like a conspiracy theorist, the paper claims on precious metals greatly exceed the actual amount of precious metal in the world: https://silverseek.com/article/paper-vs-physical-amazing-amount-leverage-silver-market
I'd guess that a significant amount of these paper claims come from commodities traders (not so much from unscrupulous providers of precious metal IRAs), but that's only a guess.
Just in case you think that link above seems a little sketchy (it strikes me that way, too, though I find the analysis believable), here are various other sources saying something similar: Link 1, Link 2, Link 3, Link 4
4) Inconvenience.
Imagine a situation comes where you'll have to use your gold, because some sort of disaster (or series of disasters) makes ordinary banking impractical.
In this disaster scenario - the only time you'll actually NEED that gold - how quickly do you think they'll send your gold after you call for a redemption? When, of course, everybody else is ALSO calling them for a redemption?
The custodian will be overwhelmed, at the very moment when you need a quick response.
5) Distributions.
Once you reach a certain age - as of 2023, it's age 73 - you will have to sell some of your holdings, whether you want to or not. Whether the price is up or down. [In fairness, this applies to any holding in a traditional IRA or 401(k), including stocks and mutual funds.]
It's called an RMD, or required minimum distribution, and it's a government mandate, so that they can finally start collecting those taxes you've been putting off during the past 40+ years.
6) Requirements.
You can't just hold any type of gold or other precious metal. No, the federal government specifies certain purity requirements. They also penalize you if you hold collectibles, such as coins, in your precious metals IRA, even if the coin meets the purity requirements!
No, IF you want gold or other precious metal, you're probably better off having some physical coins or bars in your house, or in a safe-deposit box nearby. But, of course, each of those options comes with its own issues and challenges (and expenses).
What do I do? Me, personally?
Well, I've collected coins since I was in elementary school. Recently, I've been taking a small amount of money and buying older coins that interest me, as well as the occasional silver round or tenth-ounce gold coin. I keep the more valuable ones in a safe-deposit box.
But these purchases only amount to a very small portion of my net worth. Like, 0.4% of my net worth.
I think it's an interesting hobby, and also a way to preserve some purchasing power, in the event of some sort of economic collapse or hyperinflation. But the odds of those disasters are pretty small, so I only commit a relatively small amount of resources to the pursuit. Because, in the end, it's mainly a hobby.
In my own IRAs, I use index funds - low-cost stock, bond, and REIT funds. I, personally, do not have precious metals in my IRA. I prefer to have my precious metals within easy reach.
Don't believe some random blogger? That's okay, I don't blame you. Here's Investopedia's take on the matter: https://www.investopedia.com/articles/personal-finance/091814/analysis-should-you-get-gold-ira.asp
Investopedia has a list of some of the best custodians to consider, if you're still interested: https://www.investopedia.com/best-gold-ira-companies-5087720
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Want to learn more? Check out my book reviews, including Ray Dalio's Changing World Order: https://froogalstoodent.blogspot.com/2022/04/the-changing-world-order-froogal.html
