Holding Gold in an IRA

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Holding Gold in an IRA

Postby eurowizard » Fri Jun 19, 2009 9:41 pm

Intro:
Lets discuss holding Gold in an IRA. Lets not discuss how Gold is not an appreciating asset or how TIPS is better inflation protection or how gold doesnt do anything. If you dislike gold as an investment, then please leave the thread free for people who do like gold to discuss IRA options. If you dislike investing in gold then this thread is not for you!

My personal belief is that depending on your asset allocation, 5 to 25% of the portfolio should be in gold. GLD is not "safe" in many people's opinion as an ETF and may collapse when you need it most. Physical gold is the way to go.


Why might one choose to store gold coins in an IRA?


1) Collectables tax is 28% regardless of your tax bracket. If gold does double or triple in value due to a spike in inflation, then it makes more sense to shelter it then equity mutual funds. [reference to Roth IRA]

2) Storing gold coins can be a hassle, and a security risk. IRA custodians store gold in large bank depositories.

3) One may be maxing out tax-sheltered space and have no room in taxable savings to buy gold with. Once tax-sheltered space is passed on [April 15th the following year], it is lost forever.

4) You can take physical possession of the bullion upon distribution.

Why might one choose not to store gold coins in an IRA and instead hold them personally?

1) Potential Gold confiscation that occured earlier in the 1900s. Without violating forum rules and strictly referring to what the government did, in fact do, within the last 100 years -- they might confiscate all gold and offer a below-market value for it. However, many intelligent people believe it is unlikely this will ever happen again.

2) One might choose to hold more tax inefficient things such as REITs and Bonds within sheltered space, if it is limited.

3) Some people like to have physical possession of their gold, or store some of it outside the country [like Harry Browne]

Considerations storing gold coins in an IRA:

1) Finding a custodian. The IRS requires that an outside IRA custodian hold your gold. My google-research shows that just about every single "Gold IRA" company stores their gold in HSBC precious metal depository in NYC.

2) Reduce fees. My research has shown that it is ridiculously expensive to hold gold in an IRA. One site wants almost $100 per year admin fee plus 0.08% storage fee (min $50 for this one) and fees to cash the gold into physical bullion. I have not yet determined the cheapest or best places to store them in.

3) Only American Eagles 99.99% gold can be stored in a US IRA. I believe it also allows Canadian Maples but Krugerrands are prohibited due to lower gold count (~ 90%)

4) I believe that the IRA custodial fees MUST come from within the IRA. Therefore suppose you want to invest $5k of your 2009 contribution into gold bullion. You would probably have to buy 5 ounces of gold at $925 (todays spot) each and then sit on $375 in cash within that IRA, probably earning nothing. I am not aware if you are able to buy fractional ounces of gold in a "pool" type account for an IRA. If the "pool" account is not possible, then you would effectively need to keep cash in the account to pay the fees. Since IRA custodial fees must be paid from within the IRA assets. So keeping "wasted" cash sitting on the sidelines could be considered another expense.

5) Rebalancing may be challenging. The ONLY way to properly use gold as an investment is to rebalance. It's true gold does nothing. It's worth the same now as it ever was. However if when gold increases in price, you sell it and buy stocks. And when gold decreases in price you sell stocks to buy gold, then you have a beneficial investment. This is the prime basis for Harry Browne's Permanent Portfolio.

It would be ignorant to be scared of inflation and buy $5k of gold in an IRA as a one time thing, then forget about it and just do your other Boglehead stock/bond contributions for the next 30 years. The only way for it to work, is to set an asset allocation, 5% to 25% IMHO, and rebalance it. Since the IRA custodian can only hold gold coins in that account, it will require rebalancing with new money. So supposing that Gold triples in value , but your new money going to stocks/bonds at Vanguard isnt enough to bring the gold allocation back down to normal, then your rebalancing failed and you may hold the gold through the bubble and watch it pop on you. I am sure you could sell some of the gold within the IRA account and roll that cash over to VG to invest in stocks/bonds, but that is going to be a huge hassle and will involve several weeks of lost market exposure during an obviously volatile time. By definition it would be volatile if gold spiked 300% in a brief period.

Perhaps one way to counteract this is to old a small portion of GLD in a brokerage IRA or physical gold outside the IRA in order to rebalance with. I do not like GLD and do not trust it, but if its less than 20% of your overall gold portfolio it should be OK for purposes of rebalancing.

Further Research Needed:

For anyone considering this, we need to find the best IRA custodians for the job. Not necessarily the cheapest, because gold is by definition our safety asset. So if the IRA custodian fails or some craziness happens, that is the time we would likely need the gold asset the most.
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Postby Opponent Process » Fri Jun 19, 2009 10:04 pm

two main flaws here I think:

1. what percent of people actually report gold sales for tax purposes?
2. why is storing gold a hassle? you can fit $100,000 in gold in a shoe box. just don't tell anyone.
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Postby eurowizard » Sat Jun 20, 2009 12:55 am

Opponent Process wrote:two main flaws here I think:

1. what percent of people actually report gold sales for tax purposes?


I can't advocate breaking the law as a viable investment tactic.

Opponent Process wrote:2. why is storing gold a hassle? you can fit $100,000 in gold in a shoe box. just don't tell anyone.


It's a hassle to secure and insure it.
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Postby Tramper Al » Sat Jun 20, 2009 5:48 am

I like discussing gold in a portfolio, but I find the OP very uninviting.

First, a whole lot of rules about what I can and cannot discuss. My way or stay away. Then dogma about how it must be in an IRA, how one must rebalance or be labeled "ignorant", how America Eagles are 99.99% pure gold (news to me), etc.

You might leave a little room for discussion if you want to hear any views remotely alternative to your own.
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Postby eurowizard » Sat Jun 20, 2009 9:30 am

Tramper Al wrote:First, a whole lot of rules about what I can and cannot discuss. My way or stay away. Then dogma about how it must be in an IRA


I am sorry to come across harsh but there are at least a dozen other threads in the last few months on investing in gold. All of them degraded into why gold is a bad investment. I meant this to be a complementary thread to all the Permanent Portfolio threads popping up lately. I have seen very little discussion focused on IRA holding of gold and I didnt want this thread degrading into the other anti-gold threads.
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Re: Holding Gold in an IRA

Postby xerty24 » Sat Jun 20, 2009 9:32 am

eurowizard wrote:I do not like GLD and do not trust it

Perhaps you should stop reading gold-paranoid websites and work out your trust issues. Then just buy GLD (or CEF if you trust Canadia more?) in a regular brokerage account and call it a day.

eurowizard wrote:4) I believe that the IRA custodial fees MUST come from within the IRA.

Many "alternative asset" IRA custodians offer to bill you directly rather than bill your IRA. Perhaps they do this since their $300-400/year fees would eat up the whole IRA pretty quickly!
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Postby sommerfeld » Sat Jun 20, 2009 10:15 am

eurowizard wrote:I am sorry to come across harsh but there are at least a dozen other threads in the last few months on investing in gold. All of them degraded into why gold is a bad investment.

This is the Bogleheads forum, right? Why wouldn't you expect many posters to agree with Bogle, who is on record repeatedly as saying that gold and other commodities are a bad investment?

It's not clear why, if your threat model rules out using the GLD ETF, your investment strategy relies on discovering a trusted IRA custodian to do pretty much the same thing that the folks running GLD ETF are doing. I would suggest that you are looking for a custodian with vaults made of unobtainium.

You should spend a little more time considering the inconsistencies in your threat model.

Disclosure: I only hold tiny incidental quantities of gold; I see no point in holding gold as a commodity.
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Postby Quasimodo » Sat Jun 20, 2009 10:34 am

My personal preference is Central Fund of Canada, symbol CEF.

http://www.centralfund.com/

The company has been around since 1961, the metal is stored in a Canadian bank, it's easy to buy or sell the shares.

For a personal precious metal stash at home or in a nearby safe deposit box I think US pre 1965 silver dimes and quarters make more sense than gold coins or bullion. Silver dimes are legal tender, so declaring them illegal would seem to be unlikely. (President Roosevelt didn't do it, for example) The increments are small enough to be useful for local exchange, unlike a gold coin that might be worth $1,000 or so. Also, silver dimes have a nostalgia component for me.

Just my non-expert opinion.

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Postby Wonk » Sat Jun 20, 2009 12:05 pm

EW,

If you are considering storing your entire gold hoard with an IRA custodian, I'd re-evaluate your risk, no matter who it is with. There are a number of scenarios that could see your gold totally safe, until it isn't. Every option available carries some degree of risk.

Perhaps a fraction of your reserves held with a custodian, then a portion held personally. If you are in the accumulation phase, you don't have to worry about the collectibles tax. Just keep adding.

For a personal precious metal stash at home or in a nearby safe deposit box I think US pre 1965 silver dimes and quarters make more sense than gold coins or bullion. Silver dimes are legal tender, so declaring them illegal would seem to be unlikely. (President Roosevelt didn't do it, for example) The increments are small enough to be useful for local exchange, unlike a gold coin that might be worth $1,000 or so.


I agree with this, if the plan is to use silver in denominations to trade locally. Gold is useful as a mobile store of value. Think Jews in 1939 Germany--get out ASAP with the clothes on your back and gold in your pocket to start over somewhere else. For those who discount the value of gold in such a scenario, I hope they never have to experience something like this personally. Might be hard to cross a border with TIPS in your pocket.
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Postby SP-diceman » Sat Jun 20, 2009 12:15 pm

I look at it this way.

"Real" gold isn't worth the hassle.

Precious metal type funds and ETF's along
the lines of GLD,SLV,DBC,DBA are good enough.
(assuming you want exposure to this asset class)

Is this because they are perfect? No. We just need some
pragmatism in our decisions.
On top of that. What level would this be in your portfolio?
5%, 10%, 20%, 25%?
Is it really worth all the angst?

Remember if economic Armageddon really strikes all it
does is change the story. If I was smart enough to
"protect" all my assets. Then I would need the best army,
the best weapons, the best shelter. (and so on)


Thanks
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Postby Peter Foley » Sat Jun 20, 2009 12:55 pm

I can accept the premise that one might want to hold gold as a diversifying asset class. (I personally choose not to do so.)

The reason for doing so would be as a hedge against very high inflation which has the potential of a high negative imact on your other asset classes.
I'm not sure you want a very high inflation hedge in an IRA, but if you do, I would agree with SP-diceman that real gold is not worth the hassle in an IRA.

A simple approach would be to split your allocation into two parts. For example, put 2.5% gold fund in an IRA and 2.5% real gold in a bank safe deposit box.

I equate owning gold with insurance. As insurance it protects against high inflation (risk) but it is not an investment that you would rebalance. Insurance premiums cost money. Therefore the safety deposit box fee is like your insurance premium.
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Postby Quasimodo » Sat Jun 20, 2009 1:51 pm

Here's an interesting link that discusses gold and silver:

http://the-moneychanger.com/commandments.phtml

"We expect it more likely for you to be abducted by aliens than for the Federal Government to attempt gold confiscation.

For more on this topic, go back to our homepage and click on Numismatics/Confiscation among the bulleted items."

John
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Postby larryswedroe » Sat Jun 20, 2009 1:52 pm

Point to keep in mind

The more volatile an investment the more the tax option (loss harvest) is worth, and gold, like all commodities, pretty volatile.
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Postby chaz » Sat Jun 20, 2009 2:28 pm

I don't want gold in my IRA, only in my wife's jewelry.
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Postby BFskinnerpunk » Sun Jun 28, 2009 7:40 pm

My bank discourages gold storage in safe deposit boxes, but they say they don't look at what you are putting in their boxes anyway.

I get a discount on my box, so I pay $10 yearly... but it would be $50 a year if I didn't.

If we're talking about gold specifically... at $940/oz... I could probably fit $200,000 in that little box. Maybe twice that. $50 ain't so bad.

I'm just starting to get into gold. Thinking I'll buy silver, too, and keep that at home.

Bullion Direct offers a precious metals IRA option. I don't remember seeing big fees for that. I like Bullion Direct.

Still, I haven't quite figured out how a gold/silver IRA or Roth would work out any better than just keeping the stuff stored somewhere.

BF
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Postby juhrio » Sun Jun 28, 2009 8:00 pm

SP-diceman wrote:I look at it this way.

"Real" gold isn't worth the hassle.
you don't want to own an asset that's going up and is insurance against inflation and/or a currency crisis?
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Postby eurowizard » Sun Jun 28, 2009 8:11 pm

BFskinnerpunk wrote:Still, I haven't quite figured out how a gold/silver IRA or Roth would work out any better than just keeping the stuff stored somewhere.

BF


Currently 100% of my money is in IRAs. As of January 2010 I will have $70k in Roth IRAs and then $100k in student loans. I wont have any taxable savings for the next 10 years because I will be maxing out my 401k, IRA at ~$20k and paying off ~$15k in student loans per year. My options to invest in gold are:

1) Take a distribution from my Roth IRA to buy gold coins
2) Invest in GLD which may not hold the underlying assets and may fail
3) Do a rollover to a Gold-bullion IRA custodian.


I called Everbank and disliked the process. Apparently I have to pay a 3rd party $35 per year to handle the IRA paperwork. I also have to pay a 3rd party 1.5% storage fees to handle the hold. Everbank doesnt seem to do... anything except serve as a middle man.

I dont want to use any IRA custodians I never heard of because of the "Madoff" counterparty risk involved. The reason I want gold is for safety. If a large bank like Bank of America or Schwab or Vanguard did IRA bullion holdings I would trust it. But I dont trust AmazingGoldIRA.com to handle my gold.

It seems like this is going to be a no-go for me unfortunately.
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Postby nisiprius » Sun Jun 28, 2009 9:16 pm

juhrio wrote:
SP-diceman wrote:I look at it this way.

"Real" gold isn't worth the hassle.
you don't want to own an asset that's going up and is insurance against inflation and/or a currency crisis?
It almost sounds as if you're saying it's going up, but you've phrased it in a way that makes it unclear whether you're stating it as a fact or as a hypothetical.

Is it going up? (As opposed to, "recently went up?")

Image

Oh, we should be looking at a longer period of time?

Image
That looks a little ambiguous to me, too.
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Re: Holding Gold in an IRA

Postby tetractys » Sun Jun 28, 2009 10:43 pm

eurowizard wrote:Lets discuss holding Gold in an IRA.

IMO the only viable alternative for those who want the stuff as an investment vehicle would be a low cost index ETF or no load mutual fund. The whole idea of paying someone to store actual coins or bullion in an IRA seems inherently fraught with negatives right from the start.

eurowizard wrote:GLD is not "safe" in many people's opinion as an ETF and may collapse when you need it most. Physical gold is the way to go.

Why would physical gold be the way to go? Not only would it collapse right along with GLD, holders would also have to deal with what might be called accessibility risk.

Opponent Process wrote:[Why] is storing gold a hassle? you can fit $100,000 in gold in a shoe box. just don't tell anyone.

Oops spilled the beans! Your secret identity and location won't help you now. Better send the stuff pronto to a "safe" custodian--or at least put it somewhere else besides the shoe box--and take some extra protective measures for your home.

Best regards, Tet
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Postby juhrio » Sun Jun 28, 2009 11:05 pm

nisiprius wrote:
juhrio wrote:
SP-diceman wrote:I look at it this way.

"Real" gold isn't worth the hassle.
you don't want to own an asset that's going up and is insurance against inflation and/or a currency crisis?
It almost sounds as if you're saying it's going up, but you've phrased it in a way that makes it unclear whether you're stating it as a fact or as a hypothetical.

Is it going up? (As opposed to, "recently went up?")

Image

Oh, we should be looking at a longer period of time?

Image
That looks a little ambiguous to me, too.
if gold is going up you want to own it and if it's going down you want to sell it and/or go short.
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Re: Holding Gold in an IRA

Postby eurowizard » Mon Jun 29, 2009 8:21 am

tetractys wrote:
eurowizard wrote:GLD is not "safe" in many people's opinion as an ETF and may collapse when you need it most. Physical gold is the way to go.

Why would physical gold be the way to go? Not only would it collapse right along with GLD, holders would also have to deal with what might be called accessibility risk.


Tet,

Thanks for the reply. By GLD collapsing, I am referring to the prospectus which has numerous exclusions including that GLD may not be holding the gold underlying assets, nor is anyone allowed to audit the assets held by GLD.

I am not referring to the price of gold collapsing at the same as GLD. I am referring to an extreme source of counterparty risk.

As for accessibility risk, If an IRA custodian is holding allocated gold for me, then I dont see what the accessibility risk is. The gold coins are held by HSBC bank in the gold depository with my IRA custodians name and my name "written" on the coins. HSBC knows which coins are mine. If I buy GLD then not only may there not be any gold in the vault, but if the ETF collapses, theres no to know which shareholders own which gold. Its unallocated.
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Postby BFskinnerpunk » Mon Jun 29, 2009 8:22 am

About those charts.

The gold chart is numbered in dollar amounts. Dollars have changed drastically in value since the early 70's.

Stock chart data is given in points. I'm not sure what a point is or if those individual points have suffered such devaluation as the dollar.

Gold was in the low 200's in the earliest part of the chart, and was at 270 or so in 2002. 2002 was the year I first looked into buying gold, but was told in no uncertain terms that it was an insane investment... so I didn't pull the trigger. Great, right?

So, in today's dollars, to what does $200 equate? Using an online inflation calculator, $200 in 1973 is the same as $923 in 2007. Gold can be bought and delivered (the most expensive way to get it) for about $985 an ounce.

If I can find a way to get at least some of my money to merely hold most of it's value over the course of that 30+ year span of time, I would be happy. The added security that comes from gold being a non-fiat type thing adds a touch more interest to it as an option.

Silver or other precious metals may have similar advantages.

I wish I would have entered the precious metals market back in 2002, but there are probably excellent and unprecedented reasons to go for it now as a part of a portfolio. (the printing of crazy-dollars for one)

With all of that said:
I'm as confused as the next guy about what to do with investable cash!

I don't think investable is a word, but I'm going with it
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Postby neverknow » Mon Jun 29, 2009 9:06 am

..
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Postby WileECoyote » Mon Jun 29, 2009 9:44 am

Not that this will probably put too many at ease but I have noticed that one of the most successful (and insightful) hedge fund managers John Paulson has around 30% of his fund in GLD. He owns around 9% of the entire fund I believe. A few other noted, risk averse investors are also buying gold and they are using GLD from what I can see. So I'd imagine that if someone with billions of dollars under management and the resources to research and do whatever they want to get gold exposure, decides GLD is fairly safe that I think I'm ok with it.

Maybe for those that really want to prepare for the Armageddon could use mostly GLD and thus have the IRA tax shelter plus the ability to rebalance, have less hassles and then hold some gold in a nearby bank. Or your shoebox, whatever you want so you can get access to it quickly if need be.
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Postby BFskinnerpunk » Mon Jun 29, 2009 10:04 am

Still, I'd like to know:

What's the difference between putting gold in an IRA storage (ROTH or whatever), and putting it in a box in the backyard?

I don't see a tax advantage because I imagine most would not report any particular profits.

With a ROTH, you have already paid taxes on what you put in and don't have to pay taxes on the profits when you start liquidating anyway.

For those that are enjoying massive inflows of cash income, and have already maxed out your roth and other IRA options... precious metals might have some value for you for this reason.
(and I'm not pretending that this is a news flash!)

BF
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Postby WileECoyote » Mon Jun 29, 2009 10:17 am

Just for my own situation I don't have enough room in my IRAs so I'll probably end up splitting between GLD and physically holding hold it. I'd rather be able to shelter it all but I just can't fit it. Thanks to all the posters though, I thought I was risk averse but some of you made some goods points so I'll start adding the rest as physical for now.

Also another minor interesting point that I read that isn't a major deal but worth mentioning because I didn't really think about it. I read that the expense ratio for funds like GLD is paid by selling some of the gold in stock to pay the ER. This was the quote:

"All three of these bullion ETFs track the price of their given commodities, minus fees of 40 basis points per year (0.40%). These expenses are paid by liquidating a portion of the fund's assets -- literally, selling 0.40 percent of the gold or silver each year. As a result, over time, each share's claim will represent a smaller and smaller amount of gold. (After 50 years, each share will represent just 0.082 ounces, compared to 0.1 ounces at launch.) "
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Holding gold in a IRA

Postby elmerfudd » Wed Sep 09, 2009 5:46 pm

Eurowizard---What did you finally decide to do with your IRA gold portion of the PP? I am still trying to decide. There are negatives about every ETF especially GLD but that seems to be the majority choice. I like GTU but it has a lot about it I do not understand.
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Postby mfen » Wed Sep 09, 2009 7:09 pm

Another scenario from another thread. Hold real estate in your IRA. There are more honorable custodians for this option. Just make sure the real estate has a gold claim on it. Not kidding. There are always legitimate claims available for sale.
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Postby eurowizard » Wed Sep 09, 2009 11:33 pm

I wound up deciding I really dont need to hold gold in my IRA with current options. I eventually want to hold gold in my portfolio but I am willing to market-time it in a few years when i think gold prices will substantially drop. More importantly than market timing, I am doing this because I currently have 100% of my investments in IRAs. Due to my specific life situation, I will not be able to save ANY money in taxable for at least 5 to 8 years - wont have anything left over beyond annual IRA/401k contribution and paying down high rate student loans. At that time, I will consider buying gold in taxable account - stored in a safe deposit box.
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Postby mikep » Thu Sep 10, 2009 10:54 am

Since my IRA is only with Vanguard mutual funds VGPMX seems the only option, but there's a difference for sure between holding gold/mining stocks and owning the metal - although in the fund info they can allocate up to 20% to the metal.

The other option I have is GOLDX in my 401(k) with a 1.46% ER and a .25% 12b-1 fee, but no $10,000 minimum.

If you could access ETF's I'd probably go 50/50 GLD/SLV (assuming you want the metal and not the fund).
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Postby eurowizard » Thu Sep 10, 2009 10:43 pm

mikep wrote:Since my IRA is only with Vanguard mutual funds VGPMX seems the only option, but there's a difference for sure between holding gold/mining stocks and owning the metal - although in the fund info they can allocate up to 20% to the metal.


They can allocate up to 20% but how much do they allocate and how much will they allocate in the future? If it was a fixed 20% then I would consider it a possibility. Its worthless to me in the current form. I am aware there are certain laws that prohibit >X% of a mutual funds holdings/profits to come from physical gold.
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