If you’ve ever heard of starting an IRA fund and you’re considering another option besides traditional stocks, bonds, mutual funds or ETF investments, you can branch out into other assets if you follow the right protocols. But which assets besides stocks are good to own? Gold or perhaps silver are some good ones to consider, though opening an IRA-based in those precious metals does have some requirements that other IRAs do not have. But before you go through the process of opening a silver IRA, you should learn about the advantages and drawbacks that could come with it.
Why Physical Precious Metals Are Recommended By Various Experts
Whether you’re a precious metals or collectible coins enthusiast, or someone who knows very little about them, you still should make sure you know why you’re investing in them, and what your investment strategy is. When investing in silver or other metals, it’s important to buy physical bullion and not ETFs because while precious metal ETFs can be traded like regular ETFs, you cannot have any physical bullion delivered to you in the event that you need it. But what other qualities do precious metals have that other assets don’t?
1. They Can Be Rare Legal Tender Coins
There have been many coins that have been minted over the years that have had limited circulation and are difficult to find. These coins often gain in value over the course of many years, and buying rare silver coins now could increase your wealth quite a bit down the road.
2. They Can Often Withstand Inflation And Recessions
While no asset is completely recession-proof or without its volatility, assets like gold and silver can hold value when fiat currencies lose their own. And a central bank raising or lowering interest rates often has no effect on the price of physical precious metals except for when economic activity speeds up or slows down a lot. But even when they rise and fall in value, precious metals never have a value of zero.
3. It’s Always Good To Diversify Your Portfolio
Almost every financial expert will tell you that you shouldn’t put all your investments in one stock, or even just in stocks alone. Another great principle is to go outside of stocks, bonds, ETFs, and even real estate because all of these assets can be problematic if their respective markets take a downturn. Physical precious metals can offset losses in other portfolio assets, though you shouldn’t put all of your portfolios in precious metals either.
Comparing Silver Specifically To Gold
A physical silver IRA investment will have some similarities to a gold IRA, but some notable differences as well that you need to be aware of. You need to consider these factors when buying it:
1. Silver Has A Lower Price Than Gold
One reason why investors may choose silver over gold is it’s cheaper to buy than gold. It is also is a lot easier to sell later than gold, so if you’re looking for better liquidation advantages, silver can beat gold in that area.
2. Silver Has More Industrial Demand
Silver has a lot more use in manufacturing and overall economic impact than gold. Its greater demand is another reason it’s easier to sell off than gold.
3. Its Market Is Far More Volatile Than Gold
The thing investors have to be very careful about is that silver’s market is far less stable than gold. While its overall price can beat gold on its best days, it can sink much lower than gold on its worst.
4. It Has A Lot More Storage Maintenance Than Gold
While every precious metal should be protected when stored, silver is going to require a lot more protection to keep from tarnishing. And since its value is lower than gold’s, storing a $100,000 amount of silver would take up significantly more space than that same amount in gold.
Your IRA Options For Silver
Before you invest in silver, you need to establish what kind of IRA you’ll open. Note that this will depend a lot on who your custodian is, and that will be covered more in the next section. But note that you can invest in physical silver as either a traditional or Roth IRA. A traditional IRA is when you invest before you are taxed, and then you pay your taxes upon withdrawal, whereby a Roth IRA is when you deposit money you’ve already paid taxes on. But what you do need to beware of is when you open a precious metals IRA, you’ll have to make all purchases through the custodian and you cannot deposit any precious metals into it that you already have at home.
Custodians Who Allow You To Open Self-directed IRAs In Silver
The hardest part of starting a self-directed silver IRA is finding a custodian who actually allows it. Why don’t most custodians allow IRAs based on hard assets like real estate and precious metals? In many cases, it’s because they don’t have a lot of expertise in the precious metals markets, and they simply don’t make the kinds of commissions that they might make in traditional investments, and many of them prefer to serve as advisors as opposed to firms who give investors control of their investments. There are a few firms out there who do allow self-directed precious metals IRAs, but the SEC also puts out a lot of warnings about these entities and advises checking to make sure they are licensed as custodians and advisors.
One option that can be costly but can be done for a self-directed IRA is to set up an LLC that can serve as an IRA account. However, making sure this is done properly will likely take the expertise of a professional accountant or attorney to make sure it complies with all applicable laws. Also, you still have to make sure you follow the law of having your silver transported to the approved depository and avoiding touching it to make sure you don’t draw an IRS withdrawal penalty.
At the end of the day, setting up a silver IRA can be very time-consuming since you need to make absolutely certain that you’ve done it right. The good news is there are reputable precious metals dealers out there who have guides on how to do it, so it can pay to check with the company you’re considering buying from to see if they have such a program.