What is Gold IRA?

Gold IRA is a form of IRA (Individual Retirement Account) in which physical gold or other precious metals serve as assets. So while most IRAs hold paper assets such as stocks, or bonds.. precious metal IRAs hold physical bullions or coins. Now, why do I keep saying 'precious metal IRAs' instead of 'Gold IRAs'? Because gold is not the only metal you can invest in. There are 3 other precious metals which are approved by the government of the United States. These 3 are: Silver, Platinum, and Palladium. Despite this fact, most investors stick with gold. Since it is the strongest,the most valuable and the most popular one of the 4 metals. Precious metal IRAs are self-directed IRAs, which means diverse investments are allowed. So they can include other types of retirement accounts, for example Roth IRAs, TSP (Thrift Savings Plan) or 401(k)s.

This thing might sound weird for some people. No wonder.. it has only been around for about 20 years. However nowadays investing in precious metals is getting more and more popular, especially after the financial crisis of 2008.

But is it a good thing to do?

The advantages and disadvantages of Gold IRAs

First of all, there is no such thing as a 'risk-free' investment. Every investment is risky. However risks can be lowered. Diversification is the key! Gold can be used as a hedge against inflation! What does that mean? It means that.. during inflation.. the price of paper assets drop, while the price of gold doesn't. It keeps its value. So if you diversify your investments, you can lower your risks. As a young wannabe investor the first thing I learned was.. always keep my money in different assets. Because if all of your money is in one place.. it's easier to lose it all. What I'm trying to say is.. if you have IRAs which use paper assets.. you should definitely roll over some of your funds into precious metals. So your portfolio gets more balanced.

DON'T KEEP ALL YOUR EGGS IN ONE NEST!

Be careful, though! There are a lot of scams out there! The first thing you have to do is find a good, reliable company! These companies know which types of coins and bars are allowed to be used in IRAs. Also there can be other fees besides the amount of your investment (mostly storage fees), but if you choose the right company these fees won't be a secret.

Now, of course.. there is no guarantee that you'll make a lot of money using this method. You never know whether the price goes up or down. But that is the case with paper assets too! Actually.. I think putting money in stocks or bonds is more risky nowadays than investing in gold. You can however diversify your holdings so you are able to lower your risks, as I mentioned earlier.

So what makes the price of gold increase/decrease?

The exchange rate of gold can be affected by a lot of things. It increases when the demand for gold increases too. More and more people buying gold = the price gets higher and higher. Don't be fooled though! It's not always a good thing, because it can be overpriced! In recent years Central Banks have begun to buy more gold than they are selling. Also other hoarders followed their example. That means the price of gold keeps rising.

However.. what happens when these hoarders decide to sell? Well.. the opposite.. the price drops.

Also the value of the US dollar can affect the gold prices. When it's strong, it manages to keep the price of gold lower. But when it's weaker (like during inflation) it cannot keep the gold down.. so gold rises. That is why a Gold IRA could balance your retirement portfolio.