Avoid Gold Funds in Your IRA

With the US dollar experiencing continued weakness and no clear signs of a strong economic recovery, the idea of holding gold or investing in gold funds is an attractive one for many. After all, while the markets suffered one of its quickest and steepest decline in history, gold ramped up to all-time highs, helping many countries like China strengthen the value of its reserves and, in many cases, sell off at profits that they could turn around and lend back to other countries at rates that would make many of us blush.

However, just like holding many commodities is risky, holding gold and gold funds is a very risky proposition. It often does not seem that way, but remember that it never does. The following three points outline exactly why holding gold in your IRA (or any investment) is a bad idea.

• Gold is currently trading at elevated values. Just like oil futures in 2007 might not have seemed risky as that commodity kissed the $134 marker, holding gold today might not seem overly risk. But where gold in an IRA is a super-bad idea is in the fact that any losses will be extremely difficult to recover. Just as properly diversified equity investors saw their portfolios tank during the 2007-2009 period, people who have just recently shifted into gold will find their portfolios devalued yet again. Need more proof – consider that the largest holder of gold right now consists of Exchange Traded Funds; not banks and countries.


• Gold funds are considered specialty funds. If investors are able to maintain discipline and limit their exposure, fine. However, the allure with gold right now is that it keeps touching new highs, enticing greedy and fearful investors into pouring more and more of their hard-earned cash into the metal. The risk with this is gradual but obvious over-exposure to this asset class. And within an IRA, it makes for an even greater risk because an IRA is typically used for retirement savings, resulting in a shorter time horizon to recover any losses.


• Many people do not fully understand how to trade gold. While television infomercials cite gold as an inflation-hedge, most of us cannot truly appreciate what such a claim really means. Understanding of course that many people actually experienced the complete reverse of inflation protection in the early 1990’s as gold saw a depreciation in value for several years (unlike this recent market crash that lasted less than 2 years), it should make sense to many that gold is just like any other investment with particular similarities to commodities that have much higher risks.

These points should provide at least some indication and warning for people to enter into gold investments with extreme caution. Understanding that gold comes with considerable risk, investors are well-advised to keep gold holdings outside of their IRA accounts and, if they insist on holding gold to do so in regular-tax accounts.

Source by Chris Blanchet

Avoid Gold Funds in Your IRA