Usually when people think of individual retirement accounts or IRAs, they usually think of stock IRAs. This is not surprising, after all most of the IRAs managed in the United States contain, for the most part, equities or stocks. This is the main reason why people are quite shocked to find out that there is such a thing as the gold IRA. However, there is a big distinction between the two. The distinction really is more strategic rather than anything fundamental. You are still investing. Whether you be on gold or you bet on stocks, the big difference is the amount of risk involved, the amount of predictability involved and also the amount of protection you get.
The main reason why people invest at least a portion of their total retirement funds in a gold IRA is that gold is one of the most recognized stores of value in human history. If you look back in recorded history, people have always desired gold. Gold has always had value, regardless of what corner of the globe the culture is related in. That is just how popular and classic gold is as an investment vehicle. The reason why this should matter to you is that when more speculative forms of investments like stocks and bonds crash and burn, gold looks really good and it not just holds it price but actually sky rockets in price. Gold is the default investment people flock to when there is economic uncertainty or an economic crash. As painful as it may be or as worrisome as it may be to admit, stocks are on a roller coaster ride, it can go up or down. The problem is that stock market can only sustain a certain level of speculation until it crashes to the ground. This has happened in the early 2000s, it happened in 2008 and it is sure to happen sometime in the future. That is just the way stock markets work. People can only speculate for so long until economic reality catches up to them. One key example of this of course is the .com craze of 2001. Prior to 2001 companies that had no earning history and had no possibility of even making money in the future were trading at very high prices in the stock market. Investors are just snapping up these stocks without any care as to their profitability. They were all operating on a bigger fool theory. How this works is that they would invest in a stock hoping that the price will go up to a certain level until a bigger fool steps in to buy that stock at an elevated price. That investor in turn will wait for a bigger fool to buy the stock at a higher rate. As you can probably already tell, this is not a sustainable investing strategy. Unfortunately, all stock markets regardless of the country and regardless of the setting, operate at some level on the bigger fool theory. Gold on the other hand does not work on this level at all. Gold is all about value. Gold is all about protection. Gold is all about maintaining security for extended periods of time. Does gold sink in value? Absolutely. You have to remember, investments are comparative and relative, In other words, people make investing decisions based on how attractive other investment options look. In the past six years, have looked more attractive than gold and precious metals. As a result, the price of gold has taken quite a beating. However, if there is a stock market crash or prolonged softness in the economy, you can bet with one hundred percent certainty that the price of gold and other related high value precious metals will go up in value. There is no way to get this wrong. Why? Historical pattern. Whenever there is economic softness, people do not invest in dollars or certificates of deposits. People do not even put their money in the bank or buy stocks. What they do is that they invest in gold. They invest in items that they know will hold their value with time. That is why gold will continue to have a value in the future. It might not be the value that you are looking for but you can be rest assured that given the right circumstances, gold can spike up in value.
The main reason why people invest in stock IRA is primarily for the volatility of stocks. Stocks go up in value because of perceived value. That is the bottom line. It is not uncommon for otherwise solid companies that produce solid incomes year after year to not budge much in terms of stock price. Why? They do not have hype, they do not have sex appeal. However, it is not uncommon for companies that not making money like Twitter to be worth several billion dollars but fail to generate a profit. That is how irrational the stock market is. This is precisely the kind of irrationality that can work in your favor. Stock funds have many different levels of risk, however, if you play your cards right and take the right amount of risk, you can ride the stock market rocket to very high points. This is one of the main reasons why people invest in stock IRA. Another reason, of course, is to invest in solid companies that can withstand the test of time. The down side to investing in these companies is that they can look down right unattractive during times of high stock market growths, like right now. There are certain solid companies that pretty much maintained their overall price regardless of whether the economy is going up or the economy is going down. While these stocks look really awesome during times of economic uncertainty and economic stagnation, they look like losers when the rest of the stock market is on steroids. Depending on your investment style, you can invest on solid blue chips or you can invest in stock IRAs purely for the risk. The great thing about assuming a lot of risk is that, the higher the risk you assume the higher the potential reward. Of course, the higher the potential down side as well, that is why they call it risk.
Gold IRA accounts make for great hedges against any over reach or bad speculation you undertake with your stock IRA.