There are plenty of folks who like investing in gold. Personally, I don’t see the attraction as an investment, although gold is very shiny. However, if you really like gold, perhaps the worst way to invest in gold is by investing in physical gold through your individual retirement account (IRA).
There are a lot of companies out there that want you buy physical gold in your IRA. Their ads are on conservative radio and TV shows. They like to emphasize the supposed safety of investing in gold as a hedge to poor government policy or even the collapse of the U.S. government. Unfortunately, all too often it is a bait-and-switch strategy that profits gold sellers at the expense of gold investors.
While most advertising for buying gold in your IRA mentions buying gold bullion, once investors dial the gold seller, there is often pressure to instead buy gold proof coins. In the case of American gold eagles and other common gold coins, there are only two noteworthy differences between bullion and proof coins. First, proof coins are shinier, so they are a tiny bit more expensive than gold coins. Second, online coin dealers charge exponentially higher sales commissions for the sale of proof coins. An investor looking to buy bullion as a safe investment can easily end up being sold proof coins and paying 30 or even 50% in commissions up front. That’s a 30-50% immediate loss.
Massive upfront commissions place the investor in a no-win situation. To illustrate the point, let’s say that I invest $100 in gold proof coins for my IRA. With a 50% commission, my investment is now only worth $50. Gold would have to double in value, just for the investment to break even. If gold prices decline, this only increases your loss.
How do online coin dealers get away with this? Part of the answer is probably due to the fact that securities regulators have no oversight of coin dealers. Consequently, the vast majority of investment law which is designed to protect investors simply does not apply to coin dealers. Moreover, while coin-dealer regulation varies by state, in general there are almost no laws nationwide specifically designed to protect coin buyers.
At Investor Defense Law, LLP, we often hear from investors who have been taken advantage of by coin dealers who use bait-and-switch tactics to push proof coins into investors’ IRAs.
Even if you are one of the lucky few investors who bought physical gold in your IRA and did not get hit with this bait-and-switch tactic, such an investment is still a terrible idea. One of the biggest reasons is that, under the laws governing IRAs, you yourself cannot take physical possession of your gold. Instead, you have to set up a self-directed IRA and pay annual fees of hundreds of dollars for others to store your gold. So, if the U.S. social order does break down and anarchy takes over, your gold is in a vault hundreds of miles away. How much help will it do you?
In the meantime, while our society continues to lumber along, your investment is racking up fees, which further drag down your return.
If you want to invest in gold—which I do not necessarily recommend—there are two much better ways to do it.
The first is to simply buy gold bullion with non-IRA money from a local coin shop. Compare shops (and their prices) before you buy. The second is to invest in a gold ETF, or exchange-traded fund. These are securities (protected by securities laws) which are designed to closely follow the price of gold in commodities markets. Your only commissions are the commissions associated with buying any other stock, and would most likely be under $50. A coin dealer might argue that this is not as good an investment because you do not have physical possession of the gold, but, in an IRA, you are not allowed to physically possess the gold anyway.
If you have paid excessive commissions for gold, the investment fraud attorneys at Investor Defense Law LLP may be able to help you recover your losses.
Investor Defense Law LLP is a law firm dedicated to helping investors in CA, GA and WA recover losses caused by stockbrokers, financial advisors, and investment firms. To learn more, contact an investment fraud attorney at 800.487.4660.