Most of the time, when people think of individual retirement accounts or IRAs, they usually think of paper or stock IRAs. This is not new, after all, most of the IRAs within the United States are composed of, for the most part, equities, mutual funds, or stocks. This is the number one reason people are quite surprised to find out that there is such a thing as the gold IRA. However, there is a big difference between the two IRA’s. The actual difference is more strategic rather than anything fundamental. You are still investing. Whether you are on gold or you bet on stocks, the big difference is the amount of risk involved, the amount of predictability involved and also the amount of protection you get.Why invest in a gold IRA?The key reason people invest at least a portion of their total retirement funds in a gold IRA is that gold is one of the most familiar stores of value in human history. If you look back in recorded history, people have always desired gold. Gold has always had value, regardless of what corner of the globe the culture is related in. That is just how popular and classic gold is as an investment vehicle. The reason this should matter to you is that when more speculative forms of investments like stocks and bonds crash and burn, gold looks really good and it not just holds it price but sky rockets in price.
Gold is the default investment people flock to when there is economic uncertainty or an economic crash. As painful as it may be or as worrisome as it may be to admit, stocks are on a roller coaster ride, it can go up or down. The problem is that stock market can only sustain a certain level of speculation until it crashes to the ground. This has happened in the early 2000s; it happened in 2008, and it is sure to happen sometime in the future. That is just the way stock markets work. People can only speculate for so long until economic reality catches up with them.
Case Study: The .com craze of 2001
Before 2001 companies that had no earning history and had no possibility of even making money in the future were trading at very high prices in the stock market. Investors are just snapping up these stocks without any care as to their profitability. They were all operating on a bigger fool theory.
Why was this high risk?
Companies would invest in a stock hoping that the price will go up to a certain level until bigger fool steps in to buy that stock at an elevated price. That investor, in turn, will wait for a bigger fool to buy the stock at a higher rate. As you can probably already tell, this is not a sustainable investing strategy. Unfortunately, all stock markets regardless of the country and regardless of the setting operate at some level on the bigger fool theory.
Risk Analysis: Gold vs. Stocks
Gold, on the other hand, does not work on this level at all. Gold is all about value. Gold is all about protection. Gold is all about maintaining security for extended periods of time. Does gold sink in value? Absolutely. You have to remember, investments are comparative and relative, and In other words, people make investing decisions based on how attractive other investment options look. In the past six years, have looked more attractive than gold and precious metals. As a result, the price of gold has taken quite a beating. However, if there is a stock market crash or prolonged softness in the economy, you can bet with one hundred percent certainty that the price of gold and other related high-value precious metals would go up in value. There is no way to get this wrong. Why? Historical pattern. Whenever there is economic softness, people do not invest in dollars or certificates of deposits. People do not even put their money in the bank or buy stocks. What they do is that they invest in gold. They invest in items that they know will hold their value with time. That is why gold will continue to have a value in the future. It might not be the value that you are looking for, but you can be rest assured that given the right circumstances, gold can spike up in value.Stock IRA what is it for?The main reason people invest in stock IRA is primarily for the volatility of stocks. Stocks go up in value because of perceived value. That is the bottom line. It is not uncommon for otherwise solid companies that produce solid incomes year after year to not budge much regarding stock price. Why? They do not have hype; they do not have sex appeal. However, it is not uncommon for companies that are not making money like Twitter to be worth several billion dollars but fail to generate a profit. That is how irrational the stock market is. This is precisely the kind of irrationality that can work in your favor. Stock funds have many different levels of risk, however, if you play your cards right and take the right amount of risk, you can ride the stock market rocket to very high points. This is one of the main reasons why people invest in stock IRA. Another reason, of course, is to invest in solid companies that can withstand the test of time. The downside to investing in these companies is that they can look downright unattractive during times of high stock market growths, like right now. There are certain solid companies that pretty much maintained their overall price regardless of whether the economy is going up or the economy is going down. While these stocks look awesome during times of economic uncertainty and economic inactivity, they look like losers when the rest of the stock market is on steroids. Depending on your investment style, you can invest in solid blue chips, or you can invest in stock IRAs purely for the risk. The great thing about assuming a lot of risks is that the higher the risk you assume, the higher the potential reward. Of course, the higher the potential downside as well, that is why they call it a risk.Gold IRA accounts make for great insurance against any over reach or bad conjecture you assume with your stock IRA.Related Articles
Kenneth Phillips is a digital marketer, entrepreneur and journalist. Kenneth’s articles have been published in numerous sites including Entrepreneur, Inc., Mashable, Yahoo!, AOL Finance Canada and more.
Kenneth has owned his own company for over 10 years where he helped companies with their branding needs from logo design to complete brand overhauls. He also owns a successful public relations agency that helps clients promote themselves online through SEO-driven content marketing strategies and press releases.