If you’re looking for ways to protect your retirement funds from market fluctuations, precious metals are a great option. While they may not be as profitable as stocks and mutual funds, they can provide security that other paper assets cannot offer.

However, it’s important to remember that precious metals shouldn’t become your entire investment strategy. Instead, they should add a little sparkle to your portfolio for diversification purposes.

Costs

If you’re looking to diversify your retirement portfolio and lower the risk of volatile paper assets like stocks and bonds, a precious metal IRA might be for you. Unlike those investments, precious metals have long been trusted to help preserve wealth in turbulent economic times.

But when it comes to putting your money in these types of assets, you have to be prepared for costs. You may have to pay for storage, custodial fees and insurance.

Another cost you need to consider is the seller’s fee, which can be a markup of up to 80 percent of the purchase price for physical precious metals like gold and silver bars or coins.

You can also avoid these expenses by using an exchange-traded fund (ETF) that tracks gold and other precious metals. These funds offer some of the same tax benefits as an IRA but come with lower costs.

Taxes

One of the main benefits of a precious metal IRA is that it allows investors to hold gold, silver and other precious metals in an IRA without having to pay income taxes on them. Unlike stocks or bonds, precious metals do not generate dividends and interest, so IRA investors can avoid having to pay taxes on earnings while their assets are in the account.

However, if you sell precious metals in your IRA at a profit, you may have to pay taxes on them. The IRS treats all physical coins, bars and bullion as collectibles for tax purposes.

In contrast, gains on stock and bond sales are taxed at a lower rate of 15% or 20%. But profits from ETFs backed by gold, silver and other precious metals are treated as long-term capital gains and are subject to the top 28% capital-gains tax rate. This disparity in tax rates can catch investors off guard, leading to lower-than-expected net profits after tax.

Diversification

Any seasoned financial advisor would tell you that diversifying your assets is the best way to protect yourself from any market downturn. Having all of your investments localized to one asset, such as stocks or paper assets like bonds and mutual funds, puts you at extraordinary risk when that asset’s value suddenly plummets.

That’s why many investors turn to precious metal IRA companies as an alternative to traditional assets like stocks and bonds. They do so because they offer unique value propositions that are not correlated to other market movements.

For example, stock prices are negatively correlated with bond yields, meaning that when one goes up, the other will often go down as well. This is why it is important to buy different types of investments within each asset class, such as stocks, bonds, ETFs, money market, and other cash alternatives.

Another way to diversify is by investing in a mix of companies that operate in various industries and markets. For example, if you own businesses that are located in several countries, you may be less susceptible to volatility in one market while still benefiting from growth in others.

Security

Gold and silver can be a great way to hedge against inflation and tough economic times. They’ve historically held their value over the long term, though prices can lag behind other investments like stocks.

There are many ways to invest in precious metals, including through a self-directed IRA. But if you’re considering using precious metals as an anchor for your retirement portfolio, you should choose carefully.

First, you should do your research on the investment company and its reputation. Look for a trustworthy company with strong customer reviews and a track record of success.

Next, find out whether it allows rollovers from 401(k) or IRA accounts to precious metals. If it does, you may be able to fund your SDIRA by rolling over some of your other retirement savings to this account.

If you want to include physical precious metals in your IRA, you’ll need to use an established custodian. These companies are typically banks, trust companies, credit unions, brokerage firms and savings and loan associations approved by federal and state agencies to provide asset custody services.