Is Gold a Good Retirement Investment?

We may earn a small commission from the companies mentioned in this post. This article is for informational purposes only and does not constitute financial advice.

Is gold a good retirement investment? You’re far from the only person to ever wonder that. It’s actually quite a common question, for that matter.

Many investors ask themselves or financial experts this question early in their retirement planning. However, the importance of the question grows the later in life you get.

Gold’s usefulness is something that increases the closer you get to retirement and especially when you are actually in retirement.

So, is gold a good retirement investment?

I’m going to generally say yes that it is. However, it’s the details that really matter.

The better question is how much to invest in gold. That’s something that will vary based on what stage of investment you are in. The specific percentages are different based on your objectives and needs at the time.

Having said that, there’s not usually any point in your investment life where you should just skip gold. If the end goal is a comfortable and safe retirement, then you should always include this asset in your various allocations. It always helps with diversification.

Early on, you probably won’t put much into gold. Your target percentage should rise as you move through your working years, however.

It should peak when you’re close to retirement or actually in it.

How Does Gold Help You With Retirement?

an illustration off a man with a cane stranding on top of a pile of gold coins

Gold is valuable. I don’t have to tell you that. However, how does it specifically help you with retirement?

There are a number of ways it does this, but there are even a few potential drawbacks. Nothing is ever perfect, right?

Gold Retains Its Value

Gold doesn’t rust physically. Its durability has made it appealing and a sign of permanence. That helps it be associated with accumulating wealth and having it last.

Compare that to so-called paper assets. Dollars, stocks, and bonds are all things you can physically burn. You can also see their value burn up overnight, and you might remember a few times they actually did.

One of the times that gold really shines is if you’re invested in it right before retirement and a market crash happens.

Most of your portfolio might plummet in value very quickly, leaving you to rely on your gold’s ability to retain value to protect you.

If you’re exposed enough to it, your portfolio can have time to let the market recover value in other asset classes without you being totally broke.

Hedging Against Inflation

Gold helps you out in times of high inflation because of two reasons. First, it retains its buying power when fiat currency is bleeding, thanks to inflation.

Second, many people might turn more to gold to preserve their wealth in these times, and that drives up the value of any gold you already own.

The key historical period for all this was the 1970s, which was the last time inflation was so high in America. Back then, gold values actually grew faster than the stock market. I think we’re starting to see some repeat of this.

Hedging Against Deflation

The rampant inflation happening right now won’t last forever, and saving for retirement takes decades. You’re likely to go through a period of potential deflation, and gold can help you yet again. Many people find this surprising when I tell them that.

Deflation is when prices go down.

That often happens when there’s a lot of debt across the economy and business activity is slowed down. The Great Depression is the prime example, but the Great Recession also saw some deflation in parts of the world.

In times like these, people tend to hoard cash. Their incomes might be in jeopardy. Gold is one of the safest places to store cash value, especially when demand goes up.

Demand Is Rising

Gold is synonymous with wealth in many countries, and it’s not just in Western nations. Chinese families traditionally save for the future using gold bars, and Indian families use gold for jewelry, especially for weddings.

Both nations have grown their economies considerably in recent decades, so their capacity to buy gold has grown with their appetite.

With gold being a historically international commodity, more demand means more rise in value for those that hold gold. That’s not just individuals anymore. Several ETFs are investors at organizational and institutional levels.

Supplies Are Limited

The gold market saw plenty of gold become available from the early 1990s until 2008. That was because global central banks were selling bullion from their vaults. That hasn’t stopped, but it’s also slowed down quite a bit.

At the same time, mining companies simply aren’t digging as much of it up as they used to. While there are occasional exceptions, global gold production declines a percentage point or so every year. That also puts upward pressure on prices.

New mines are scheduled to come into production. Yet, they can take up to a decade to actually fulfill operations. Even then, we never know how much they will produce.

Political Turmoil

Gold is called the “crisis commodity” by many. Gold prices go up internationally in times of global crisis, and they go up at a national level when there is domestic political turbulence. You don’t want to hear this, but there may be plenty of future crises to profit from between now and your retirement.

Diversify That Portfolio

Portfolio diversification is just a fancy way of saying not to put all your eggs in one basket. The more technical definition is collecting investments that don’t have a close correlation to one another. Gold certainly has a negative correlation to the stock market.

Gold did well in the 1970s and from 1998 until 2008. Stocks and bonds did better in the 1980s and 1990s. A properly diversified portfolio has stocks and bonds along with gold for lower levels of risk and volatility.

What lies ahead between now and retirement? Probably stretches of both. Be ready for anything.

A Weak Dollar

Just holding on to your wealth in dollars is not a great idea. A few months of living expenses are fine in a money market account, but past that, you need something that doesn’t lose value as the dollar does. It’s not just inflation, either.

The American dollar has been falling for a long time, even though it’s a crucial reserve currency around the world. Huge government budgets and trade deficits contribute to the dollar’s decline. Occasionally big increases in the overall supply of money also factor in.

The years 1998 to 2008 were a time when gold tripled in value. That was partly because investors were flocking to gold for its security as the dollar plummeted. Gold hit $1,000 per ounce in 2008, and then it hit $2,000 in 2012.

How To Invest in Gold for Retirement

a retired couple goes for a walk in the park

You might be convinced at this point that investing in gold can help your retirement plans and savings. The next question is how to invest in gold for these purposes. I’ll let you know there are several different ways to do it, but I think you’ll also see that only one of them really makes the most sense for retirement purposes.

Physical Gold

Gold comes in many forms, including bars, coins, and jewelry. You can buy these and keep them yourself. There’s quite a physical comfort from having them in your own hands.

There are several problems with this, however. You’re going to pay taxes on each transaction. You’ll also have to find a place to store it all where you minimize the risk of theft or loss, and your renter’s or homeowner’s insurance won’t automatically cover them.

Mining Stocks

Another option is buying the stocks of individual mining companies. When gold values go up, the prices of these stocks also tend to follow suit. When these companies announce new mines or deposits and higher production, that also tends to boost the stock values.

There are two risks with this approach. First, you need to make sure you buy stocks from the best gold mining companies since individual stocks won’t always reflect global rises in commodity value as owning actual gold does. Second, you’ll be bypassing gold’s negative correlation to the stock market in owning actual stocks, as a market downturn can hit you here.

Gold ETFs

Exchange-traded funds usually have low fees and let a collective group of investors pull together their buying power to tap into a particular asset. Some ETFs buy gold and let everyone own a percentage. This might work for you if you don’t yet meet the investment minimum of gold IRAs.

The downside is that ETFs are traded on exchanges. That means they’re not just subject to the volatility inherent with gold prices but also the market swings of any index they are traded on. The weakens your diversification and might be more than you are comfortable with.

Gold IRAs

Gold IRAs were created in the 1990s. These are tax-advantaged accounts where you can buy gold and hold it until such time you withdraw it in a way where taxes might be lower if they apply at all.

For the most part, when gold values rise, you’ll keep pretty much all of that as your own wealth.

I say for the most part because there are set-up and annual fees associated with gold IRAs. However, if you want to do a rollover from previous retirement accounts into gold, you can do so without paying taxes on it. You get the chance to maintain the value of wealth you have in other IRAs, 401(k)s, and 403(b)s in a gold format in a tax shelter.

YOU MAY ALSO LIKE: Gold IRA Scams: What to Avoid

Avoiding taxes on both ends is a real winner if you ask me. However, during the run of your account, it will be stored in a secure depository. That means no one is going to break into your home and steal it because it’s simply not there.

To top it all off, most brokers have educational programs that help you learn about investing in gold. They want you to be successful and profitable. I think it’s rare to find something like that.

How Much Should You Invest in Gold?

The conventional wisdom is that you should invest anywhere from 5% to 15% of your portfolio into gold and possibly other precious metals. I think it’s a good range, but I would also advise you to consider your age. Where you are at with investing also matters a lot.

I would absolutely start at 5% from a young age or whenever you start investing for retirement. This at least plants a seed and gives you nominal exposure to the gold markets. When you’re younger, you need to be invested more heavily in growth areas, and that’s more likely to be stocks or possibly real estate.

I wouldn’t bother with 10% until you’re middle-aged. By then, your portfolio has hopefully grown quite a bit. If you get the chance to do any rollovers, you might be able to meet the minimum investment requirements of some gold IRA brokers.

RELATED READING: How to Roll Your 401k into a Gold IRA

The 15% suggestion is best for when you’re closing in on retirement. At this point, you need a more conservative portfolio so you can withstand a market correction without having your timeline trashed. In actual retirement, you might even want to go higher.

Your actual percentages are subject to your own decisions along with any personal financial advisors you have. I would tell you that generally speaking, your investment in gold should be less than other asset classes, such as stocks, bonds, and real estate.

Then again, I would put more in gold than something truly alternative and risky, such as cryptocurrencies – but that’s just my personal experience. You’ll want to consult with your financial professional to decide which investments are going to work best for portfolio.

Summary: So, Is Gold a Good Retirement Investment?

When done right, I think it is. It shouldn’t be your only or primary method of investment.

However, as a diversified asset class that you increase your exposure to over time, I think it can serve your retirement plans just fine.

Ultimately you will want to consult with your financial advisor to determine the best course of action for you and your portfolio.

If you do decide to invest in gold or precious metals, Goldco is my preferred choice for getting started:

9.7/10Our Score
  • New customers might get 10% free metals in silver coins
  • First-year fees might be waived
  • Goldco reps don't get pushy with heavy sales tactics
  • Staff are quite friendly and knowledgeable to new investors
  • This broker wants investors to make good investment choices
  • Minimum investment level stands at $20,000
  • Website not totally transparent about fees

Mitt Wilson

About the author

Mitt Wilson has a background in journalism and has been writing about investing for more than two decades. In his free time he enjoys spending time with his wife, touring the United States, and golfing.

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}


You may also like...