Silver IRA: Diversify Retirement Account With Silver Bullion
Many of us have heard from financial professionals that gold and silver are the commonly used Precious Metal IRAs used as a hedge against inflation in the stock market. They played an active role in protecting investors from downside risk. Silver has had a varied trend of successes and failures during bear markets and recessions. For example, the value of silver increased by 15.2% during the stagflation during 1976-78, while the S&P 500 index decreased by 19.4%. Likewise, the financial crisis that started in 2007 and affected the entire world adversely caused the S&P to decrease by 56.8% severely, but the value of silver appreciated by 1.1%.
While silver's performance in these 2 two crises has been notable, it must be noted that silver did not perform well during other bear markets and recessions. Most of them, including the Black Monday Crash, led to the value of silver decreasing immensely (double digits depreciation in most recessions).
What is a Silver IRA?
Silver Individual Retirement Account is a special type of account that consists of silver assets like silver ETFs, stocks, physical silver bullion, bullion bars, silver coins, silver bars, etc. This account is tax-deferred, i.e., until the account-holder withdraws funds from the account, you would not have to pay capital gains taxes on the holding assets. The account holder can subtract his contribution made to the account from their income when filing the applicable taxes.
The basic idea of a silver IRA is to protect against the macro risks in the economy. It is considered a safe-haven investment option for investors who have portfolios with numerous stocks or have a fixed stream of income. Silver IRAs mainly help spread risk within asset classes since it is unrelated to the stock market and protects the investor against downside market risk.
Benefits
A traditional IRA is an account that consists of pretax dollars. There are no immediate tax benefits in this account, but when an investor withdraws money at retirement age, that withdrawal is tax-free. The Internal Revenue Service places limits on the amount of money that can be contributed to the IRA, and the usual limitations apply. On the other hand, Silver IRAs have some additional benefits that have been listed below.
Diversification of Portfolio
Unlike Silver IRAs, traditional IRAs mostly consist of paper assets like bonds and stocks, which is why they are vulnerable to extreme changes in market conditions. While diversification is imperative when it comes to retirement savings during the turbulent times we live in. Silver IRAs in the asset mix give the investor the benefit of not experiencing volatility since the value of the physical metals is maintained, unlike paper assets when the stock markets crash severely.
A well-diversified portfolio requires financial professionals to select uncorrelated investments to lower overall risk.
Inflation Hedge
Silver can be used as an effective hedge to counter the inflation in the economy and the uncertain volatility. It is known that currency values rise and fall and also tend to devalue over time, but the value of silver, on the other hand, has risen over the years. Investing in silver IRAs helps one protect their saving in their retirement fund from currency risk and protect the asset's purchasing ability.
Liquidity and Uses
The liquidity of silver IRAs and their omnipresence and versatile nature is another additional benefit of silver compared to other investment options, including Gold IRAs. These characteristics result in silver having exceptionally high demand. It has immense industrial uses, including solar panels and electrical systems, in financial institutions, banks, and governments.
Drawbacks
Restricted Returns
One of the major drawbacks of investing in Silver IRAs is that the returns are restricted. Investing in silver does not provide investors with interest, rent, or dividends.
While investing in traditional assets benefits from crediting the dividend in one's IRA, which is allowed to grow till retirement free of tax. The investor also gets an option to reinvest the interest earned and benefit from compounding, which helps grow your retirement money.
Investing in Silver IRAs means an investor can only benefit from the potential gains in silver prices, i.e., capital gain. In an uncertain economy, an increase in prices cannot be guaranteed. This might also mean that the investor receives lesser money at the time of liquidation than he paid at purchase.
Restrictions on Custody
While investors worldwide believe that investing in silver IRAs would mean that they would be able to own the actual metal or tangible asset, this is not true. The rules set by IRS do not allow investors to buy, display or contribute the purchased silver. According to the rules, counterparty risk must be eliminated to prevent fraud and threat, and for this reason, an account custodian must be involved.
Custodians buy silver on behalf of the investor and arrange for transport, storage, and insurance. But since the investor is not buying the silver himself, he does not know whether the metal is there or not. Selecting a reputable silver dealer is the most important thing while investing in silver IRAs.
How to Start a Silver IRA
- Choose your dealer after performing Due Diligence
- Use educational resources to educate yourself about storage fees, depositories, and Pricing
- Decide the suitable IRA to invest in among the various types of IRAs available, including Traditional, Roth, and SEP)
- Educate yourself about the Restrictions and Fees before you set up a Silver IRA
- Choose a custodian who is reputable and can act as a broker
Tips
While it is known that every investment in a financial asset does hold its fair share of risk, silver is an asset that does contain risk but is unaffected by the changes in the stock market. Investors can also invest in alternative assets like Gold bars, Gold coins, platinum coins, or Silver assets, but they have characteristic risks.
But investors investing in silver must beware of loss, theft, and counterparty risk. These risks can be mitigated by investing in silver and gold IRA companies that invest in IRS-approved bullion/coins and have an IRS-approved broker who ensures every transaction.
Including Silver IRAs in their retirement plan or not is the personal investment choice of the investor depending upon their risk appetite, but it helps protect one's money from shocks in the equities market. Other than self-managed IRAs, investors also have the chance to invest in silver options, stocks, Exchange Traded Funds, or mutual funds that invest in silver. These are cost-saving and hassle-free options available to the investor to add to the retirement portfolio since he would not have to worry about buying, storing, and insurance the assets.
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Disclaimer: Content on this website is not intended to be used as financial advice. It is not to be used as a recommendation to buy, sell, or trade an asset that requires a licensed broker. Consult a financial advisor.