Investment professionals agree that between 5% and 10% of our retirement portfolios should involve precious metals such as gold investing. In fact, the American Precious Metals Exchange recommends even more than that, suggesting that up to 30% of one’s portfolio be invested in a precious metals IRA, such as with gold investing, during strong economic climates.
Because a self directed IRA account enables you to fully control the types of investments that you decide to make, you may choose to invest in a wide variety of precious metals, provided that it is approved by the IRS. However, if you choose to invest $100,000 or more in metals such as gold or silver, financial analysts will suggest that you diversify your metal investments.
Precious Metals IRA approved such as platinum, gold, palladium, and silver are your best bets when investing larger amounts of money. On the other side of the spectrum, those who choose to invest on a smaller scale of $5,000 or below, it is considered wise to concentrate on just one metal for your investment. However, no two portfolios are exactly the same; therefore, it is always a good idea to seek advice from your favorite financial expert before deciding on where you’d like to invest.
The value of gold has had its ups and downs throughout the modern era; over the span of this century’s first 10 years, the value of gold increased nearly 6 times its original value in 2000 and became one of the highest performing commodities on the market. The drastic increase in gold’s value attracted many interested in gold investing who bought it at its highest value.
After this sharp rise in value around 2011, gold plummeted to -36% from its highest value and created loss for those who invested at its highest point. Unfortunately, gold’s story is not a unique one. This happens often in the investment world, even with gold investing.
A typical investor should diversify their portfolio with a variety of assets; unfortunately, many investors choose to buy these commodities when they are highest in value, hoping to see the numbers climb even higher. The bottom line is that regardless of where you choose to invest, it is always best to do so with good strategy in place to insure the best results for your time and money, as is the case with gold investing.
Gold Investing the Importance of Strategizing your Precious Metals IRA
There is nothing necessarily wrong with being excited about your investments. However, in order to maximize the benefits of investing, it’s important to come up with an investment strategy before taking steps in any direction, such as gold investing in a precious metals IRA.
While diversification is important to any portfolio, it is not the only thing to consider when managing your IRA. Asset allocation can help to strengthen your portfolio, too.
A diverse portfolio will have money invested across several different assets, but an asset allocation strategy takes it one step further. Asset allocation can diversify a portfolio through many different types of assets which are determined by factors such as how risky the investor chooses to be, the investor’s time frame, and the investment philosophy that works best for the investor.
Market changes are constant, and asset allocation enables any investor to benefit from such financial cycles. Asset allocation can enable an investor to maximize benefit and minimize risk based on these cycles. In turn, this can create a stronger portfolio.
Asset allocation works by creating a portfolio that contains less risk by including a number of differing asset classes. While each part of the portfolio may carry a certain amount of risk, the sum of its parts — a portfolio which was created using this theory — actually has a lower risk factor. Because each asset class will rise and fall in value during different times in its cycle, together the highs and lows will balance each other out within the portfolio. This results in less risk for the investor, such as the case with gold investing in a precious metals IRA.
In order to diversify your portfolio effectively, you must focus not only on how many assets present, but also the effects that each has on the overall picture at any given time. Your assets should be consistent with one another in such a way that the better performing assets can strengthen other highs, or cancel out assets which are temporarily experiencing a drop. In short, your investments should work together to create synergy within the portfolio.
A portfolio’s assets should ideally be mixed in ways where the investments are not necessarily correlated with each other. In order to formulate a balance of uncorrelated investments which all revolve around gold, consider my suggestions for gold investing in a precious metals IRA.
Gold Investing: 3 Strategies to Maximize your Precious Metals IRA
Proper asset allocation when gold investing in your precious metals IRA is a great way to keep your portfolio strong and safe.
Because gold is a popular commodity for individuals engaged in gold investing of all experience levels, we have compiled a few strategies to help you wisely allocate your gold investing in your precious metals IRA:
#1 Light Allocation Strategy
The investor who chooses a light allocation in gold investing will typically choose for physical gold to comprise between 5% and 10% of their precious metals IRA. An investor who chooses light allocation will most likely be quite confident that our economy will stay stable within the near future, but is still working with a smaller amount of portfolio insurance.
Investors who are lightly allocated in gold investing are advised to consider light allocation in currencies of economically stable countries, or light allocation in other commodities as well, to keep their portfolio well balanced in their precious metals IRA.
#2 Moderate Allocation Strategy
Investors who choose to moderately allocate in physical gold investing will likely consider investing between 15% and 25% of their IRA’s assets in physical gold investing. Investors frequently choose the moderate allocation strategy for gold as a reflection of today’s somewhat erratic economy.
Investors who choose moderate gold investing allocation are often savvy to investment risks in today’s uncertain financial climate, and are doing so in order to offset any potential loss from financial crises such as inflation.
#3 Heavy Allocation Strategy
An investor who chooses to allocate heavily in physical gold investing will have a precious metals IRA that is comprised of between 30% to 50% gold investing.
Such allocation indicates that this investor feels that the economic climate, with the the value of the American dollar decreasing as inflation rises, is not a good time to invest in more volatile currencies. Those who choose a heavy allocation strategy must remember that an annual review of their precious metals IRA will help to minimize risks of this allocation and setting aside profits should the value of gold rise dramatically.
Also, heavy allocators should remember that they must still focus on their portfolio as a whole, rather than simply on one aspect of the portfolio; otherwise, the investor may not be adequately prepared for the long term. If a heavy allocation investor reviews their portfolio annually and re-balances the allocated assets accordingly, this type of portfolio can actually perform better than an all-stocks portfolio. Therefore, it is important to review the assets on a regular basis.
Before gold investing, it is always important to learn from others’ past mistakes in order to avoid them. Be sure to formulate a precious metals IRA asset allocation strategy that is best for you, before investing. Choose the level of allocation that feels most comfortable to you, with a tolerable risk level. Above all, don’t forget to rebalance your precious metals IRA portfolio annually in order to keep it strong and stable.