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Are gold IRAs risky?

Gold IRAs are popular investment vehicles - but are they risky? Getty Images

Gold individual retirement accounts (IRAs) have become a hot topic, as these retirement accounts make it possible to invest in gold while enjoying the tax advantages associated with retirement investments. 

But, as an investor, reward often comes with risk. And with so many people touting the benefits of gold IRAs, is there risk involved? All investment vehicles - even cash itself - come with at least some risk, but are gold IRAs considered risky investments?

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Are gold IRAs risky?

Nearly any investment you make comes with some risk and gold is no exception. However, some investments are riskier than others. So, where do gold IRAs sit? They're typically thought of as a low-risk investment. Here's why: 

Gold is a safe-haven asset

Gold has long been considered a safe-haven investment

"Safe haven refers to an investment that during times of economic downturn is a place to hide," says Steve Azoury, ChFC and owner of Azoury Financial. "Short-term downturns are acceptable, but with prolonged turmoil, market values can fall sharply."

"When markets plunge and inflation is on the rise, many flee toward gold, which may increase in vring times of turmoil," says Azoury. "Gold can also help diversify one's portfolio against these market swings."

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Gold can offer protection against inflation

Inflation is a significant risk to any investment portfolio. After all, as prices rise, the purchasing power of the dollar falls. So, the return needs to outpace the current rate of inflation. An investment in gold can help

Unlike safe-haven assets that derive their value from interest-related returns, like treasuries, gold derives its value from the fact that it's a commodity in finite supply. 

And,. other safe havens may fail to keep pace with inflation when interest rates are low. However, the price of gold has historically risen during inflationary economic periods. So, the commodity is a compelling way to maintain value in your portfolio when inflationary pressures are high.

Your gold investments aren't easily accessible

One threat to the growth of long-term investments is withdrawals by the person investing the money. However, as a tax-advantaged retirement account, there are rules surrounding withdrawals when you invest in a gold IRA. You'll need to wait until you're 59 and a half years old before you can tap into your gold IRA on a penalty-free basis. So, you'll be less likely to access your retirement savings before you need it. 

IRAs come with tax advantages

Not only are gold IRAs relatively safe when compared to other investments, they're tax-advantaged accounts. As is the case with other IRAs, you can either make your gold investments on a pre-tax basis or allow your gold to grow tax-free - depending on whether you choose a traditional gold IRA or a Roth gold IRA. 

Tips for opening a gold IRA

Here are some tips to help you open a gold IRA with confidence: 

  • Know the differences between gold IRA types: You make your investments in traditional gold IRAs on a pre-tax basis. Although you'll pay income tax before making Roth IRA investments, those investments will grow on a tax-free basis. Carefully consider how these different types of gold IRAs will impact your retirement savings. 
  • Choose a reputable custodian: Your IRA's custodian manages your IRA assets on your behalf. So, it's important to choose a custodian with a history of providing quality services to investors. 
  • Compare fees: You should also compare the fees you'll pay to make sure you're getting the best deal. Consider setup, maintenance, storage and transaction fees as you compare your options. 
  • Pay attention to IRA contribution limits: The IRS sets new IRA contribution limits each year. If you invest up to this limit, you'll enjoy the tax advantages associated with your account. However, if you exceed IRA contribution limits, you'll likely face an additional tax burden based on the amount of money you invest over the limit (a 6% tax typically applies to excess IRA contributions. You may have to pay this tax each year the excess amount remains in your account.).    

The bottom line

Gold IRAs are a relatively safe investment vehicle that can help you diversify your portfolio while protecting your assets against market volatility, inflation and economic fluctuations. Moreover, these investment vehicles usually come with tax advantages. Consider opening a gold IRA to take advantage of these benefits today

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