Numerous consumers may be familiar with the traditional IRA investment option, typically comprising stocks, bonds, and mutual funds; fewer, though, might know physical gold assets have historically offered strong returns — and some may not even be aware you can invest with gold, says Kevin DeMeritt, founder and chairman of Lear Capital, a precious metals firm based in Los Angeles.
“Since 2008 or so, exchange-traded funds, where you can purchase a piece of paper backed by a large portion in physical gold, is what a lot of financial advisers have wanted to talk about,” DeMeritt says. “They like the stocks — either a mining company or an exchange-traded fund that’s backed by physical gold. But physical gold that you could actually physically deliver [to investors]? They don’t bring that up.”
The existence of physical gold investment options isn’t the only point of confusion. Here are three of the most common fallacies many people believe about gold-based investing.
Any gold that you buy or own can be used as an investment asset: While a gold-centric shopping spree might sound enticing, for items to be included in gold IRAs — self-directed individual retirement accounts that involve ownership of a physical precious metal asset, such as a gold bar or coin — certain rules apply.
For an item to qualify as a valid investment option, it has to have a specific fineness, per the Internal Revenue Service’s Internal Revenue Code. Gold coins, for instance, need to have a fineness of at least 0.995.
“The government has made these rules that the precious metals have to have a certain fineness to them,” Kevin DeMeritt says. “If it has that quality, then you can add it to an IRA; if it does not, then you cannot — with the one exception being Gold American Eagle coins.”
Certain storage stipulations exist, too. Gold IRA assets have to be held by a third party in a specific kind of designated location; you can’t keep them in your home, for example, or at a relative’s residence.
Lear Capital sends all metal assets directly to the highly secure IRS-approved depository vault at the Delaware Depository, which has safeguarded precious metals since 1999 and supports its services with a comprehensive insurance policy underwritten by Lloyd’s of London, one of the world’s oldest insurance providers. If physical loss or damage were to occur due to an issue like an earthquake, precious metal assets stored at the depository would be insured for their full value.
Gold IRA storage considerations are one reason working with an experienced professional can be beneficial. An external service provider, such as Lear Capital, which has successfully processed more than $1 billion IRA-related transactions, can help guide investors through all the major steps involved in setting up an IRA account and transferring funds into it.
Gold is a tame investment choice that’s best for people who just want to play it safe and are OK with very modest returns: While it’s true gold can be less volatile than some other types of investments, the perception that it’s a humdrum option is misguided, DeMeritt says.
“People think it’s a relic,” Kevin DeMeritt explains. “It’s been around for 5,000 years; if something’s been around that long, [it’s perceived as] maybe old and just no longer useful. The misconception that gold can’t produce profits for people, and it’s just more of a safety-type asset, is completely incorrect.”
In reality, gold’s performance has been impressively consistent over the years. Unlike the stock market, which can be significantly affected by economic and political issues — something investors have seen happen this year — gold prices have risen fairly steadily in the past two decades, according to the National Mining Association.
While gold has increased in value by a whopping 566% since 2001, the S&P 500’s value has risen notably less — by 253% — and the Dow Jones Industrial Average index’s value increased 225%, according to a Lear Capital analysis.
“Gold has an inverse relationship to stocks and other types of assets,” says Kevin DeMeritt. “In times of war or terrorism, usually you’re going to find the markets become extremely volatile. Nobody knows what’s going on from day to day. The volatility of gold is not going to be the same as other investments; it’s typically going to give you more stability.”
With inflation currently still high and further Federal Reserve rate cuts expected this year — which could continue to impact the already uneven stock market — investors who are looking for a way to balance the more variable investments in their portfolio might want to consider incorporating physical gold asset-based investments, according to Lear Capital’s Kevin DeMeritt.
“If you look at gold by itself, it’s dramatically outproduced the stock market,” he says. “From the year 2000, if you invested $80,000 in stock and $20,000 in gold, it would be worth $385,000 today; you picked up an extra $65,000 in your bank account with 20% of your assets in gold.”
Physical gold asset-based investments are costly options that are likely out of many investors’ price range: Actually, Kevin DeMeritt says, gold might be more reasonably priced than many people think.
“Gold is trading at around $1,750 to $1,800 per ounce today (12/22/22),” he says. “So if you wanted to purchase a 1/10th-ounce gold coin it would go for around $200 today. Silver is even less; it’s about $23 an ounce. So you could start with silver, which is a great option right now, and then move your way up to gold as you accumulate enough silver.”
In general, the Lear Capital founder recommends that people who are new to gold-based investing take a gradual approach.
“Start off small,” DeMeritt says. “We recommend around no more than 20% of precious metals in someone’s portfolio. You don’t have to start [with] 20%; start with what you feel comfortable with. Get an education over time. It’s better to cost average in almost any investment anyway; just start accumulating every time you buy some stock [by saying], ‘I’m going to buy some precious metals as well.’”