Gold IRAs for Inflation Hedge
With inflation persisting, many clients have turned to gold and other commodities-based investments as a historically reliable asset choice. Many may wonder about gold investments as a way to protect against inflation during retirement. While gold ETFs and gold in the equities markets are consistent investments, questions exist over advising clients to invest in gold and other precious metals via their IRAs.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about the advisability of using gold IRAs as a hedge against inflation.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Byrnes: Gold and other less traditional retirement investments are a highly effective way to hedge against inflation during retirement. Limiting retirement investments to only traditional equity and bond investments can be risky when it comes to inflation. Gold is historically extremely effective when it comes to hedging against inflation--and also when it comes to de-risking in the face of global and geopolitical turmoil.
Bloink: Self-directed IRAs are always complicated regardless of the underlying investment--much more complicated when compared to traditional retirement savings vehicles. As such, these accounts should only be recommended for more sophisticated investors who understand those risks. Investing in physical gold via an IRA structure carries unique risks--and costs that many clients haven't considered--both on the administrative end and when it comes to storing the physical gold itself. These costs can eat into any gains that these types of accounts can generate over time. For ordinary investors, these costs can outweigh the benefits of a gold investment.
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Byrnes: The point of a gold IRA is not necessarily to replace traditional retirement investments. Traditional equity and bond investments are critical to any successful retirement savings plan. The goal of adding precious metal IRAs is to add a layer of diversification with the aim of reducing specific risks during retirement. Gold has historically been a strong and popular performer and there's no reason gold IRAs shouldn't be a valuable piece of a retiree's investment portfolio.
Bloink: Gold IRA custodians are not regulated in the same manner as traditional IRA custodians—a fact that many hardworking investors may overlook entirely. These custodians are essentially only available for facilitating the administrative aspects of a gold IRA--they have no role when it comes to the legitimacy of the underlying gold investments. Many ordinary investors rely heavily on their custodians and advisors when it comes to evaluating and selecting investments, so it's important for any client to be clearly informed that it's essentially up to them to ensure the veracity and value of the underlying physical gold investment.
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Byrnes: Yes, it's important that clients understand that unique rules and risks do exist when it comes to establishing a self-directed IRA. That doesn't mean that establishing these gold IRAs isn't a smart move for clients who are concerned about inflationary risks. The existence of complex rules and administrative burdens isn't a reason to avoid an otherwise smart investment.
Bloink: In the end, it's important for clients to remember that gold isn't always the "gold standard". Historically, gold hasn't always outperformed equity investments—and it's never a sure bet. Different alternatives exist for clients who want to invest in gold--including gold ETFs and other types of investments that carry fewer costs and risks when compared with a gold IRA that's invested solely in physical gold.