Incorporating Alternative Assets into Your Current IRA Strategy
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People refer to their post-retirement life as their ‘golden years’ for a reason. It’s when we finally put the worries of adult life behind us and set out to do everything we always wished we could.
Retirement dreams are different for every individual. For some, they involve buying a nice little cottage by the riverside and spending a peaceful life with their partner. For others, the dream is to travel far and wide and tick off as many places off their bucket list as they can.
Unfortunately, all of these retirement dreams require you to have savings. And considering that American retirees aren’t keen on saving, it paints a worrying picture.
Incorporating your alternative assets into your current IRA strategy can mitigate this risk. Let’s see how this works.
What is an IRA?
An Individual Retirement Account is a retirement savings account which you set up with either an IRA management company or a financial institution. Despite the name, IRAs are not necessarily set up when you reach the age of 66. They need to be set up early on so you can reap the benefits once you retire. The best aspect of having an IRA, as opposed to a conventional bank account, is tax-deferment benefits. There are many types of IRAs which retirees can choose from on the basis of their requirements.
What alternative assets can be added to an IRA?
When it comes to investing, a common choice for a starter is usually equities, stocks, and bonds. Some investors also opt for government securities, owing to their low risk. The problem with these securities is that if the stock market goes down or the world sees another economic downturn as it did in 2008, the investor loses out on a sizable amount of their investment.
To diversify both the risk and the returns of an IRA, we recommend incorporating precious metals into your existing IRA strategy. Let’s look at some of the benefits of doing so:
- As per the basic rules of finance, when you diversify your portfolio, the risk also spreads across a variety of securities. Even if the demand and market prices for one asset go down, the other saves you from losses and your monthly stream of income remains uncompromised.
- Precious metals like gold are historically known to be the best hedge against inflation. According to Reuters, the relationship between gold prices and inflation has always been weak, and the correlation is actually inversed. This means that gold prices remain steady, irrespective of other assets fluctuating in value.
- Let’s say you’ve invested in the stocks of a well-established company and one fine day, the company shuts down. The shares that you purchased will hold no value whatsoever at this point. This isn’t the case with precious metals. Owing to their wide range of industrial and ornamental usage, gold and silver almost always in high demand.
- Precious metals IRAs enjoy the same tax-deferment benefits as traditional IRAs.
- If you don’t want to go through the hassle of setting up a precious metal IRA, you can always ask your IRA Company to rollover your existing IRA into a precious metals IRA. Most of these companies charge no set up fees and the storage is free for the first three years.