NOTE: The following information is not intended to be for educational purposes only and not investment advice. For specific investment allocations, speak to a financial expert.
For decades investors have worked to craft the perfectly diversified retirement savings plan. For a long time, this simply consisted of a mix of different assets. Today, it’s clear that a well-diversified portfolio also includes its share of precious metals. Fortunately, reallocating capital inside of an IRA or other retirement account is easier than ever.
Why diversify with metals?
Precious metals are a great way to diversify your retirement savings. The big motivator today is stability. Traditional diversification would usually consist of a variety of risk-carrying assets, usually with the allocation changing the closer you are to retirement. But even low-risk investments carry risk, and that risk is amplified during times of economic uncertainty. With the financial crisis of 2008 and ongoing worries with the banking industry, it’s no wonder more people are looking to add precious metals to their mix.
In fact, physical precious metals have become one of the top alternative investment options for investors. While there are a plethora of ways to invest in metals, the only way to truly gain direct exposure to this alternative asset class is to purchase them directly. Precious metals — such as gold, silver, platinum, and palladium — hold their value quite well in most economic conditions and tend to pace, if not outpace, inflation. Their stability makes them an excellent diversification option to hedge against recessions and economic uncertainty.
Correlation with Other Assets
Many financial assets tend to be procyclical or risk-on assets, meaning their price tends to rise when the economy is booming. Crude oil, base metals like copper and iron and most commodities fall into this category.
Gold, on the other hand, is considered a countercyclical or risk-off asset. Its price is much less sensitive to general economic conditions, and often rises during crises.
Silver is both an industrial and an investment metal, with demand almost evenly split between these sectors. So determining how its price responds to economic developments is a lot more complex.
Both platinum and palladium are primarily used for manufacturing, and tend to be more economically sensitive. However, both are also incredibly rare and in quite limited supply, which means that supply and demand play a greater role in their price than general economic conditions.
Beyond which precious metals you choose, there are a variety of types of investment options to choose from. Since precious metals are a tangible asset, the physical form they take is important. Let’s look at the different precious metals investment options available for investment into a retirement account.
Your Physical Precious Metals Investment Options
Bullion vs. Proof
Before we get into the different types of precious metal options for your IRA, it’s essential to understand the difference between two important types of precious metals produced around the world: bullion and proof. Bullion coins are high-quality and generally intended for investors rather than collectors. Their value is primarily derived from the weight of metal in each coin.
However, bullion coins will not have the mirror-bright finish or the crisp lines of a proof coin. Depending on the mint, bullion may or may not be sold directly to the public and instead sold through dealers located throughout the country. For instance, the U.S. Mint doesn’t sell bullion directly to consumers who must purchase the precious metals from dealers, while the Perth Mint sells directly to consumers.
Proof coins are not created for regular circulation and instead produced at the highest possible quality and intended for collecting and saving, in extremely limited quantities compared to bullion coins. Proof coins are sold directly by the U.S. Mint (and other world mints) to individual investors, collectors, and dealers who generally store them in protective cases within safes or depositories.
Generally speaking, proof coins may benefit from additional collectible value. This is based on a number of factors, including rarity, mint mark, the sentiment of the numismatic marketplace, condition and so on. Professional collectors recognize subtle variations among proof coins based on their overall appearance, and some are more respected than others.
Bullion coins, on the other hand, are generally priced on their precious metal content only.
You can think of proof coins as limited-edition collectibles, with the potential for a secondary market value greater than their metal content. Bullion is more like a “standard version” which is both purchased and priced primarily for its precious metal content only.
Thanks to the Taxpayer Relief Act of 1997, investors were given access to invest in physical precious metals, including gold, in a self-directed IRA (SDIRA). When it comes to gold coins, your SDIRA can include approved Treasury-minted coins. These coins can be any size or weight, including one ounce, one-half ounce, one-quarter ounce, or one-tenth ounce.
The following are examples of gold coins that are approved for self-directed IRA investments:
|Gold Proof Coins||Gold Bullion Coins|
As for gold bars, the US government has imposed some restrictions for these products to be investable inside an IRA. Gold bars must be produced by an NYMEX or COMEX-approved refinery or the U.S. national mint to ensure authenticity. Additionally, gold bars and coins must meet the minimum purity requirements of .995 purity to be deposited directly into an SDIRA.
NOTE: American Eagle bullion and proofs, at 0.9167 purity, are the only exception to the 0.995 purity minimum.
|Silver Proof Coins||Silver Bullion Coins|
Silver bars have similar requirements to their gold counterparts for IRA inclusion. The purity requirements are a bit higher, with a minimum .999 pure silver bar necessary. Also, silver bars must be produced by an accredited facility. Acceptable accreditations include: COMEX, LME, LBMA, LPPM, TOCOM, NYMEX, NYSE/Liffe/CBOT, and ISO-9000 or a sovereign mint like the Royal Canadian Mint.
Platinum and Palladium
Platinum and palladium are two other precious metal options for your IRA. These metals do not enjoy the same trading volume or liquidity as gold and silver. However, they provide another means of diversifying your retirement savings. And studies show that, when it comes to diversification within precious metals, more is better.
Some examples of platinum and palladium-approved coins that can be invested in an IRA include:
- American Platinum Eagle – The official platinum bullion coin of the United States, these coins are legal tender, weigh 1 troy oz, and have a purity of .9995
- Canadian Palladium Maple Leaf – Weighing 1 oz, these coins are .9995 pure and have a face value of $50 CAD
As for bars, IRA-approved platinum and palladium bars must have a minimum of .9995 purity. Palladium is privately minted, and in order to be included in an IRA, it must come from an NYMEX or COMEX-approved facility.
How to Reallocate Precious Metals into Your Savings
Outside of an IRA, reallocating precious metals into your savings will likely trigger a taxable event. That’s because selling one asset to buy another is a taxable event in a non-retirement account. Taxes are a significant drag in traditional investment accounts and can drastically reduce both your wealth generation and growth of your investments.
Instead, you can rebalance precious metals within your IRA easily and without any tax consequences because of the tax-advantaged nature of retirement accounts. Therefore, you can reallocate positions as often as you’d like without having to worry about the tax consequences. If you are curious about reallocating your precious metals within your IRA, a Birch Gold Group Precious Metals Specialist can help with this process.
How Should You Allocate Your Precious Metals Savings?
At Birch Gold Group, we can’t give you investment advice. But we can help you to better understand precious metals, their place in a well-diversified savings plan, and how to reallocate your savings into precious metals if you choose to do so.
Whether you are interested in rebalancing into gold, silver, or other precious metals, doing so inside of an IRA account is not only easy, it provides the most optimal tax benefits since you don’t pay any taxes for reallocating investments like precious metals within an IRA. There are even a wide variety of metals and products to choose from within precious metals themselves.
The Precious Metals Specialists at Birch Gold Group are ready to help you reallocate your IRA into precious metals today.