With the price of gold challenging new all-time highs on a regular basis, more and more investors have begun to consider if the commodity should be a part of their retirement plan. Classically overlooked for multiple reasons, given the current economic landscape, gold should be an element of your retirement fund. Successful retirement planning requires being fully aware of fundamental changes to multiples factors and markets; recent shifts in these forces make gold an important part of a comprehensive plan.
The Forgotten Investment
Gold has been historically overlooked as a part of retirement planning for several reasons. First, securities that are based on commodity prices tend to only come in large denominations and have a healthy amount of volatility. Prior to the introduction of ETFs, futures were the most efficient way to invest in gold; these contracts are large and not appropriate for most investors based on their complexity and volatility.
The other option that was available, other than financial instruments, was to buy physical gold. As most financial planners are merchants of financial products, not physical assets, gold was rarely considered. For better or worse, financial planners are generally focused on those products that can make them a profit. Within that context they may try to be helpful, but if they cannot make a profit, there is no incentive for them to consider other options.
New Products and Physical Delivery
Given the explosion of gold prices, there are now more ways than ever to invest in gold. Some of the available new products include:
- Gold-focused mutual funds
- General commodity funds
Each of these options have different strengths and weaknesses, but each make it more feasible for gold to be included in one’s retirement plans. ETFs, for example, give you direct access to the gold market, allow you to hold gold in a tax-advantaged vehicle, and are easy to trade in small denominations. On the other hand, ETFs do not offer any professional management features and can be volatile. Making a prudent decision between these options requires spending the time to understand the benefits of each and being able to articulate why it should be included. Gold coins are less liquid, but are one of the most stable choices.
Why Gold at All?
Under the current Federal Reserve regime, and given the political unrest that has spread across the globe, inflation may be the single biggest risk to economies at present. In times of high inflation, commodity prices tend to appreciate dramatically. While the Fed argues that core inflation is contained, a trip to the supermarket shows that prices are on the rise. When coupled with global uncertainty that has threatened the strength of the dollar, an investment in an intrinsically valuable resource that maintains its value under all conditions gives you some safety in any otherwise uncertain period.