A gold IRA may be an attractive investment if you’re looking to take advantage of the many tax benefits of an IRA retirement account. An IRA allows savers to amass money — either on a tax-deferred or tax-free basis — and compound their money faster than in a taxable account. Adding gold to an IRA allows savers to take advantage of the metal’s proven long-term returns.
Here are three top reasons to open a gold IRA when saving for your golden years.
3 reasons to open a gold IRA
Gold offers a number of advantages when saving in an IRA account. Adding physical gold to an IRA can let you benefit from gold’s qualities: as a store of value, as a hedge against inflation and as a way to diversify your assets away from stocks and bonds.
Defensive store of value
Gold is a “turn to” asset when economic times get tough. Gold has a long and proven history as a store of value — thousands of years’ worth of history, in fact. This defensive nature means that investors often turn to gold when economic uncertainty is on the horizon. Plus, as the economy grows, the price of gold tends to follow, as it becomes more expensive to dig out of the ground.
The defensive nature of gold means that it tends to grow more modestly than some high-flying assets, but that it does maintain purchasing power over time. And some investors like this kind of “sleep well at night” protection rather than chasing higher but more volatile returns elsewhere.
Hedge against inflation
Because gold acts as a defensive store of value, it also acts as a hedge against inflation. That is, as inflation rises, the price of gold also rises and may more than offset the rise of inflation. Gold helps investors maintain purchasing power against inflation’s destructive and erosive effects.
This quality means that gold can help investors protect themselves against an overheating economy or a central bank that prints too much money. The price of gold rises to reflect the more available dollars (or euros or yen…), offsetting the factors that keep prices moving higher.
Diversification
Adding gold to a larger investment portfolio can help reduce the overall portfolio’s volatility. Traditional securities such as stocks — and even bonds sometimes — can be relatively volatile, and adding gold to the mix can help smoothen the portfolio’s returns. Gold’s performance is less correlated with traditional assets, meaning it may zig when financial markets zag.
For example, compare the performance of an all-gold fund to that of the stock market as a whole using the financial measure of beta. By definition, a beta of 1 indicates that an asset’s price is as volatile as the stock market, while a number between 0 and 1 indicates a less volatile asset. The 10-year beta of SPDR Gold Shares (GLD), which owns physical gold, is just 0.17, showing that this all-gold fund shows just a fraction of the volatility of the stock market.
This differing performance means that adding gold to a portfolio will round the usually jagged peaks and valleys of an all-stock portfolio. Financial experts often recommend allocating 5 to 10 percent of a portfolio to gold as a way to achieve this diversification.
Disadvantages of opening a gold IRA
Despite those advantages, a gold IRA also offers some disadvantages, like any asset does.
Lower returns over time than stocks
It’s important to compare the potential returns of physical gold with those of stocks to see what you might be giving up for gold’s benefits. Let’s compare the performance of the same gold fund above with that of a top S&P 500 index fund, which contains hundreds of America’s top companies.
Here are the annual returns over some recent performance periods.
| Asset | 1 year | 3 years | 5 years | 10 years | 15 years |
|---|---|---|---|---|---|
| SPDR S&P 500 ETF (SPY) | 27.1% | 13.1% | 14.6% | 13.4% | 14.2% |
| SPDR Gold Shares (GLD) | 35.9% | 14.1% | 11.6% | 7.4% | 5.9% |
Source: Morningstar as of Jan. 23, 2025.
While gold has had a nice run in the last few years, the S&P 500 index fund has outperformed it markedly over time. Over the 15-year period here, gold has drastically underperformed. A $10,000 investment in this S&P 500 fund 15 years ago would be worth $73,185 today. In contrast, the same investment in this physical gold fund would be worth $23,729 — much less.
High annual fees
A gold IRA may charge relatively high fees as a percentage of your investment, unless you have a significant investment in gold. A gold IRA requires you to pay for storage and insurance to protect your gold in a depository, and it may charge annual management fees for the IRA, too. A $10,000 investment could see fees eat up 2 or even 3 percent of the investment per year.
That said, the fees in a gold IRA typically don’t increase if you have more invested in the account. So if you have $50,000 in a gold IRA, you’re still paying the same total fees, but now they eat up just 20 percent as much as before on a percentage basis. These fees are one reason why you want to work with one of the best gold IRA providers and help reduce your total costs.
Transaction costs
With a gold IRA, you’ll also want to consider transaction costs for purchasing physical gold, which hit you on both the buy and sell sides. To buy physical gold, you’ll typically pay more than the spot price, and when you go to sell, you’ll receive less than the spot price. You’ll need to carefully assess exactly how much you’re likely to pay in commissions for a round trip, but it’s not out of the question that you could lose more than 10 percent on these transaction costs.
A more attractive way to invest in gold is by purchasing a gold ETF that owns the physical gold, if that’s what you want to invest in. The best brokers for stocks won’t charge a commission, you can buy and sell at effectively the spot price, and you pay only a low expense ratio for the fund.
Here are some other top ways to invest in gold.
Bottom line
You’ll need to examine your own retirement finances to see if a gold IRA makes sense for you. Retirement savers looking to grow their wealth quickly may find that gold is less attractive than stocks, while those who are looking to defensively maintain wealth may find it more appealing.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.
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