401k and IRA Rollover to Gold
If you have a 401(k) then, like tens of millions of other Americans, you are already saving for your retirement. A 401(k) makes putting money aside for the future as simple as possible. Your employer arranges it and generally speaking, as long as you continue to work for that employer, you will continue to pay into the plan. There other ways to save for your retirement, but if you don’t have anything else arranged then a 401(k) is probably the best option to begin with.
- It allows you to save in a tax-efficient way
- You save a little money every month
- The money is taken straight from your earnings
- Your employer may top up your contributions
- All the administration is taken care of for you
- Over the long run, you should see good returns on your investments
A 401(k) is a great place to start saving for your retirement. It’s a one-size-fits-all approach that works well for most people, most of the time. However, some of these same factors can mean there can come a time when a 401(k) may not be the best savings plan for you any more. Disadvantages of a 401(k)
- The investment decisions are made on your behalf
- The investment decisions are made on your behalf
- The funds you are invested in may be more volatile than you are comfortable with
- You may not be properly diversified
- You cannot make changes to your plan
Particularly as you near retirement, you may realise that your 401(k) is no longer serving your needs as well as it used to. If that happens, then it’s time to change your approach. After all, your retirement is too important to leave things to chance.
Where the Problems Lie
A 401(k) makes saving for retirement easy, for the reasons explained above. You simply put a little money aside every month, directly from your salary – in fact, it’s all done automatically so you may not even notice the payments are happening at all. The real issue is that a 401(k) is designed to perform well over the long term. Most people will save for retirement for decades – 40 years or more isn’t unusual. Your 401(k) will typically put your money into a variety of stock market funds.
Ultimately, these are simply backed by large companies listed on stock markets like the Dow Jones and the NASDAQ. Their value goes up and down from day to day, according to a wide range of factors. These include how profitable each company is on its own terms, as well as how the economy overall is doing. Most days the value of each stock fluctuates a small amount – remember that these are generally large, stable companies. In times of recession or where there are serious problems with a company, the value may fall more than that. During the worst phase of the Global Financial Crisis, the stock market as a whole fell by more than 50 percent.
Some banks and other big firms had to be bailed out by the government or even went bankrupt, effectively becoming worthless to their shareholders in either case. This was disastrous for anyone who gained a large proportion of their income from a portfolio of shares. Over the long run, of course, the stock markets move up and down but ultimately provide a good return. So long as you are investing on the timescale of at least 10 years and ideally 20 or more, those funds should do better than most other kinds of asset. Less than that and you remain very vulnerable to fluctuations in the stock markets. This is why some retirement savings plans keep an increasing amount of your money in the form of cash the closer you get to retirement: it means you aren’t as vulnerable to such sharp movements in share prices.
Cash is Not King
If $1 buys you a loaf of bread now, there’s no guarantee that it will still be enough to do so in a year’s time. This is why the price of most goods keeps going up, year after year. Most years, inflation is around 2 or 3 percent. That means you savings have to be generating 2 or 3 percent returns just to be worth exactly the same amount! If they are not, then the gradual effect of inflation is to take a bigger and bigger bite out of your savings, eroding their value over time. Even if inflation stays at 2 percent – the target set by the Federal Reserve – $10,000 of savings would only be worth the equivalent of $8,200 after 10 years.
When inflation remains on target at 2 percent, this is bad enough. Savers see the value of their money gradually decreasing, year by year. Since your retirement may last 20 or 30 years, this is why it is a bad idea to rely on fixed payouts from your savings plan. What seems like enough to live on now could be worth less than half as much further down the line. When inflation rises above this level, the effects on your cash savings can be dire.
Throughout history, gold and other precious metals have been used as a stable store of value. For centuries and millennia, gold and silver themselves were used for currency. Until relatively recently even the US remained on the ‘Gold Standard’, which means its currency was backed (linked to) the value of gold. When it left the Gold Standard, the value of the dollar was reliant only on the confidence that the US and the rest of the world had that the government would honour its promise to pay the face value on your notes and coins. Gold and other precious metals like silver and platinum tend to keep their value when other assets like cash and stocks are losing them. This is because it is considered to have ‘intrinsic value’. It is difficult to mine and attractive to use.
Whenever there is an economic meltdown, investors have turned to gold to protect the value of their savings. Better still, gold has performed well in its own right in recent years. Not only is it resistant to inflation, and not only does it increase in value when the stock markets fall, but it has provided solid returns in the last 15 or 20 years (allowing for some fluctuation as the Financial Crisis progresses and the stock market starts to look more attractive to investors). All of this means that gold can be an excellent addition to your retirement savings plan. What gold can offer your retirement plan:
- Stability in times of recession or stock market volatility
- A ‘hedge’ or protection against runaway inflation
- Great returns in its own right
Rolling Over Your 401(k)
A better option can be to convert your existing retirement plan into one that allows you to include gold in your portfolio. This process is known as a ‘rollover’. Essentially, this just means instructing your plan’s administrator to transfer the cash value of your savings into a different provider’s plan, known as as Individual Retirement Account or IRA. You can then use that money to buy gold and other precious metals, since an IRA allows you the flexibility to make your own decisions about what to invest in. Note that you do not have to use all of the money to buy gold – you can keep a proportion of it in funds and other assets. As well as physical metal (typically coins and bars of specific purity), you can invest in shares in mining companies, as well as gold ETFs, or exchange-traded funds.
These allow you to invest in gold without holding the physical asset. In this way, you can still invest in gold but diversify for additional protection. There are many companies that will help you with the administration required to rollover your 401(k).
Gold can be an excellent addition to your retirement plan, though it’s not for everyone. In order to decide whether it makes sense for you, you need to understand the pros and cons of investing in precious metals – as well as the easiest and most tax-efficient way of doing so. We have many years of experience between us in helping savers invest for their retirement in the way that suits them best.
We believe that you should be allowed to take the decisions you need to in order to safeguard your retirement. If you are saving for retirement and would like to know more about whether gold and other precious metals would make a wise addition to your portfolio, do contact us and we would be glad to discuss it further with you.
You may have saved for years using a 401(k) and found that it has worked perfectly well so far, but now it may be time to take a different approach. Our job is to help put you back in control of your own money and ensure that you can provide for yourself and your loved ones during your retirement.
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